Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Nagpur vs M/S. Ispat Industries Ltd on 21 October, 2010
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/839/05-Mum. (Arising out of Order-in-appeal No. SVS/60/NGP-II/2004 dated 27/12/2004 passed by the Commissioner (Appeals) Customs & Central Excise, Nagpur. ) For approval and signature: Honble Mr. P.G. Chacko, Member (Judicial) Honble Mr. M. Veeraiyan, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see : Yes
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : Yes
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
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Commissioner of Central Excise, Nagpur
:
Appellant
Vs.
M/s. Ispat Industries Ltd.
Respondent
Appearance:
Shri P.K. Agarwal, Authorized Representative (JCDR),for appellant
Shri Vishal Agarwal Advocate with
Shri Uday Shetty, Advocate, for respondent
CORAM:
Mr. P.G.Chacko, Member (Judicial)
Mr. M. Veeraiyan, Member (Technical)
Date of hearing : 21/10/2010
Date of decision : /2011
ORDER NO.
Per : P.G. Chacko
The respondent in this appeal of the department is engaged in the manufacture of Cold-Rolled steel sheets/coils etc. Their main raw material is Hot-Rolled Coils (HR Coils). A team of officers of the department visited their factory on 6.9.2002 and, upon scrutiny of records, noticed that the respondent had received lesser quantity of HR Coils than that shown in the invoices and transport challans/lorry receipts but MODVAT/CENVAT credit had been taken of the duty paid on the entire quantity of HR Coils shown in the said documents. As all the records of raw material receipts were not readily available in the factory, the officers again visited the unit and withdrew certain records under Withdrawal Memo dated 17.9.2002. They also obtained true copies of computerized registers of HR Coil receipts and invoices on sample basis from the respondent. A statement of the companys Authorized Representative was recorded under Section 14 of the Central Excise Act on 26.2.2003. After the investigations, three show-cause notices (SCNs) were issued to the respondent on 3.9.2003, 30.9.2003 and 23.1.2004 for recovery of alleged inadmissible MODVAT/CENVAT credits amounting to Rs.29,92,445/-, Rs.4,19,012/- and Rs.1,12,636/- availed during August 1998 August 2002, September December 2002 and January March 2003 respectively. These SCNs also demanded interest and proposed penalties under the relevant Rules read with the relevant Sections of the Central Excise Act. The first SCN invoked the extended period of limitation by alleging that the noticee had suppressed short-receipts of HR Coils with intent to avail inadmissible credit fraudulently for evading payment of duty on final product. The shortages of HR Coils and the credits taken thereon were mentioned in the annexures to the SCNs.
2. In their replies to the SCNs, the respondent submitted, inter alia, (i) that they used to verify the correctness of the weight of HR Coils by weighment on their own weighbridge before making entry in the HR Coil Receipt Register, (ii) that the difference in weight of the material between their register and the consignors invoices was due to the variation in the weights recorded by two weighbridges, one in their own factory and the other at the originating station (consignors end), (iii) that this variation was within the tolerance limits certified by the Assistant Controller of Weights & Measures (Department of Legal Metrology) and also by an independent Chartered Engineer, and (iv) that actually there was no shortage of raw material received in their factory. The materials supplied by the consignors were entirely used in the manufacture of the final products and, therefore, MODVAT/CENVAT credit of the duty paid thereon was not deniable. The respondent also relied on the Tribunals decision in C.C.E, Aurangabad Vs. Sipta Coated Steel Ltd. [2000 (125) ELT 578] and Neera Enterprises Vs. CCE [1998 (104) ELT 382].
3. In adjudication of the dispute, the original authority held against the respondent after noting that, in many cases, the factual position (regarding the weight of HR Coil mentioned in invoice and the quantity entered in raw material receipt register) was different from what was stated in the replies to SCNs. The extended period of limitation was held to be invocable and the cited case law was held to be inapplicable. In the result, the entire demand of duty (with interest) came to be confirmed against the party and penalties imposed on them. But the party succeeded on merits in an appeal filed with the Commissioner (Appeals). Hence the present appeal of the department.
4. Heard both sides. Ld. JCDR referred to the relevant rules (Rule 3(1) of the CENVAT Credit Rules, 2002; Rule 57A(4) of the Central Excise Rules, 1944 etc.) and submitted that MODVAT/CENVAT credit could be allowed only on that quantity of input which was actually received in the factory and used in, or in relation to, the manufacture of the final product. In this connection, he placed reliance on the P&H High Courts judgment in C.E.A. No. 13/2004 [CCE, Ludhiana Vs. Krishna Wire Products (P) Ltd. & others] 2010-TIOL-290-HC-P&H-CX. It was argued that the rules were mandatory and hence required to be complied with for claiming credit of duty paid on inputs. In this context, ld.JCDR claimed support from CCE, Thane Vs. Nicholas Piramal (India) Ltd. 2009 (244) ELT 321 (Bom.), CCE, Chandigarh Vs. Karam Chand Appliances Pvt. Ltd. 2009 (238) ELT 706 (H.P.) and CCE vs. Spectra Electronics Pvt. Ltd. 2009 (235) ELT 795 (H.P.). It was further contended (with reference to Rule 7(4) of the CENVAT Credit Rules, 2002) that the burden was on the respondent to show that the input was utilized in the manufacture of the final product. In this connection, JCDR relied on CCE, Aurangabad Vs. Greaves Cotton Ltd. 2008 (225) ELT 198 (Bom.). According to him, the burden of proof was not discharged in this case. Referring to the statement of the respondents authorized signatory & Manager (Excise), Sanjay Dahiwade, the ld. JCDR contended that short-receipt of HR Coil was admitted by the party and, therefore, MODVAT/CENVAT credit was not admissible to them in respect of the quantity not received and not used in the manufacture of the final product. In this connection, he relied on Swaraj Mazda Ltd. Vs. CCE, Ludhiana 2007 (208) ELT 480 (Tri.-Del.). Apropos of the certificates produced from Legal Metrology Department, the JCDR submitted that the statutory rules governing input duty credit were mandatory and did not accommodate factors like tolerance limits prescribed for weighbridges. He submitted that the order of the Commissioner (Appeals), who considered such irrelevant factors and granted relief to the party by not according any evidentiary value to their confessional statement, was only liable to be set aside. Drawing support from the apex courts judgment in Union of India Vs. Dharmendra Textile Processors 2008-TIOL-192-SC-CX-LB, the ld. JCDR also pleaded for penalty on the respondent under Section 11AC of the Central Excise Act.
5. Learned Counsel for the respondent submitted that the appeal was only liable to be dismissed in view of the Tribunals Larger bench decision in CCE Chennai Vs. Bhuwalka Steel Industries Ltd., 2010-TIOL-19-CESTAT-MAD-LB, wherein it was, inter alia, held that minor variations due to weighment by different machines required to be ignored if such variations were within tolerance limits. He also relied on Union of India Vs. Bhilwara Spinning Ltd. 2008 (222) ELT 362 (Raj.), wherein the High Court upheld an order of the Tribunal by holding that, unless the invoices covering the input were found to be wrong or the input received under such invoices was found to have been diverted for some other use, the invoices would per se be the proof of the quantity of input received in the factory and used in the manufacture of the final product as also the proof of payment of duty on the input, and that no curtailment of credit of such duty was permissible. The ld. Counsel also referred to Sanjay Dahiwades statement (copy produced) and submitted that nothing contained therein could be considered as amounting to admission of short-receipt of HR Coil. It was only a general statement explaining the mode of weighment on weighbridge, the reasons for variation in weight of material between invoice/challan and HR Coil Receipt Register, etc. The counsel submitted that, though Dahiwade had stated that an amount proportionate to any quantity of material lost in transit was deducted from the freight billed by the transporter, there was not even an allegation in the SCNs that the respondent had recovered any proportionate amount from transporter. The ld. Counsel also submitted that the Commissioner (Appeals) in this case had rightly followed the view taken by the Tribunal in the cases of Sipta Coated Steel Ltd. (supra) and Mardia Chemicals Ltd. (supra), which view was approved by the larger bench in the case of Bhuwalka Steel Industries Ltd. (supra).
6. We have carefully considered the submissions. It is an admitted fact that the lorryloads of HR Coils which were received at the respondents factory were weighed on their weighbridge and the net weights of the material were recorded in the HR Coil Receipt Register maintained by the respondent. Often these weights were found to be less than the quantities mentioned in the corresponding invoices. In some cases, the weight entered in the said register was higher than that indicated in the invoice. In both cases, MODVAT/CENVAT credit was availed of the duty paid on the material as indicated in the invoices. These facts, noted by the lower appellate authority, are also not in dispute. The only dispute is with regard to the credit availed on the differential quantity of input where the weight of material entered in the material receipt register is less than that mentioned in the corresponding invoice. According to the appellant, this differential quantity of input was not received in the factory and not used in the manufacture of the final product and hence not eligible for MODVAT/CENVAT credit as per the relevant rules. According to the respondent, the variation in weight is on account of two different weighbridges having been used for weighing the material, one at the suppliers end and the other in their own factory. These weighbridges are of different capacities viz. 60 MTs and 40 MTs and their tolerance limits (as certified by the competent authority in the Legal Metrology Department) are 1 60 kgs and 1 40 kgs respectively which works out to 0.075% to 0.1%. The actual shortage of material, as found on comparison of the invoices with the HR Coil Receipt Register, is 0.02% to 0.04% only, which is within the above tolerance limit. These facts, pleaded by the party and accepted by the lower appellate authority, have not been disputed by the appellant. The contention of the Revenue is that the rules do not permit any tolerance limits of weighbridges to be taken into account in the determination of admissibility of MODVAT/CENVAT credit. We find that a similar contention of the Revenue was considered by a larger bench in the case of Bhuwalka Steel Industries (vide supra). The conclusions arrived at by the larger bench are seen recorded in paragraphs 12 and 13 of its order, reproduced below:
12. Considering arguments from both sides and the case laws cited by both sides which have been extracted above, we are of the considered view that different types of shortages cannot be dealt with according to any one inflexible and fixed standard for the purpose of allowing credit under Rule 3(1) of the CENVAT Credit Rules. Decision to allow or not to allow credit in any particular case will depend on various factors such as the following:-
(i) Whether the inputs/capital goods have been diverted en-route or the entire quantity with the packing intact has been received and put to the intended use at the recipient factory.
(ii) Whether the impugned goods are hygroscopic in nature or are amenable to transit loss by way of evaporation etc.
(iii) Whether the impugned goods comprise countable number of pieces or packages and whether all such packages and pieces have been received and accounted for at the receiving end.
(iv) Whether the difference in weight in any particular case is on account of weighment on different scales at the despatch and receiving ends and whether the same is within the tolerance limits with reference to the Standards of Weights and Measures Act, 1976.
(v) Whether the recipient assessee has claimed compensation for the shortage of goods either from the supplier or from the transporter or the insurer of the cargo.
13. All these factors listed above and any other relevant factor has to be kept in view in deciding any particular case as to whether the entire consignment has been received at the end of the recipient assessee without any diversion. Tolerances in respect of hygroscopic, volatile and such other cargo has also to be allowed as per industry norms excluding, however, unreasonable and exorbitant claims. Similarly, minor variations arising due to weighment by different machines will also have to be ignored if such variations are within tolerance limits. In our view each case has to be decided according to merit and no hard and fast rule can be laid down for dealing with different kinds of shortages. (underlining added).
7. In the present case, the variations due to weighment by different weighbridges are, undisputedly, only 0.02% to 0.04% and within tolerance limits prescribed under the Standards of Weights & Measures Act [SWM Act for short] and the Standards of Weights & Measures (General) Rules 1987 [SWM (General) Rules for short], and hence can be ignored as held by the larger bench in the above case. As it is not the case of the appellant that the so-called differential quantity of HR Coil was lost in transit or diverted or that it was not duty-paid, we have to hold that the entire quantity of the material covered by the invoices was received in the respondents factory and used in the manufacture of the final product and therefore credit of duty paid on such quantity would be admissible to them. We have also perused the full text of Sanjay Dahiwades statement. Though this statement contains Dahiwades answers to a number of queries of the investigating officer, what is relevant for our purpose is the answer to question No.7 inasmuch as the appellant has not relied on, or referred to, any other part of the statement. We quote:
Qn. No.7: If there is variation in weighment of HR Coil, i.e., if weighment of HR Coil is found short than the challan weight, how payment is made to transporter? Ans.: While receipt of HR coil, if we found shortage in weight by way of theft/stolen condition in transit, in that condition, whatever the shortage receipt in HR coil, we deducted the payment in proportionate from the transporters bill.
There is nothing in the above statement which can be construed to mean that any part of any particular consignment of HR coil was actually lost in transit by theft during the period of dispute or that the respondent actually recovered any proportionate amount by way of deduction from transporters bill on account of loss of material by theft. Even the SCNs did not allege to this effect. Therefore even the limited ground raised by the appellant with reference to the partys statement is not tenable. The ground raised with reference to tolerance limits of weighbridges stands negatived by the larger bench in the aforesaid the case. Further, the view held by the Tribunal in the cases of Sipta Coated Steel Ltd. and Mardia Chemicals Ltd., which was followed by the Commissioner (Appeals) in the instant case, stands approved by the larger bench in Bhuwalka Steel Industries case and, presumably, the department has not challenged the larger bench decision.
8. The HR Coils in question would pass the tests laid down in the Bhuwalka decision of the Tribunals larger bench, to be eligible for MODVAT/CENVAT credit of the duty paid on the entire quantity covered by the invoices. Nothing to the contra was established on behalf of the appellant. The case of the respondent is further supported by the High Courts decision in Bhilwara Spinning Ltds case, wherein the entire amount of CVD paid on imported raw material (HFO) was held to be available as MODVAT credit to the assessee, by the High Court, after noting that undisputedly there was no diversion of the goods covered by the invoices, the transit loss was only normal loss due to evaporation and no part of the quantity of goods was put to any use other than in the manufacture of the end product. The High Court also held thus:
The mode of proof of quantity and payment of duty on inputs received and used as input is by producing the invoices. Unless the invoices are found to be wrong or diversion of inputs received under invoice to any other use is found, there is no provision to avail lesser Modvat credit than what has been proved to have been paid on the entire goods received and used in factory of manufacturer.
9. The decisions relied on by ld. JCDR are distinguishable one way or another. In the case of Krishna Wire Products, after noting that the assessees had availed input duty credit on the basis of invalid invoices and that this aspect was admitted by them, the High Court held that the Tribunals decision holding them eligible for the credit was perverse. In the cases of Karam Chand Appliances and Spectra Electronics also, the High Court found the invoices to be invalid and held that the MODVAT credits taken on the basis thereof were not admissible to the parties. In the present case, the validity of invoices was never called in question and, therefore, the above High Court decisions are not applicable. There can be not doubt, the burden of proof regarding admissibility of CENVAT credit is on the claimant as laid down under the relevant rule and as held by the High Court in the case of Greaves Cotton Ltd. In the present case, this burden was successfully discharged by the respondent by producing valid invoices and certificates from the Legal Metrology Department and independent Chartered Engineer. They could establish that the variations in weight of HR coil between the invoices and the HR Coil Receipt Register were within the tolerance limits prescribed for the weighbridges under the SWM (General) Rules made under the SWM Act and, therefore, the entire quantity of material covered by the invoices was received in the factory and used in the manufacture of the final product. Again, no doubt, the rules governing availment of MODVAT/CENVAT credit are mandatory as held by the High Court in Nicholas Piramal case. At the same time, it cannot be ignored that Parliament recognized the possibility of occurrence of error in weighment on weighbridges and accordingly provided for prescription of different tolerance limits for weighbridges of different capacities. These limits were prescribed under the SWM (General) Rules, 1987. Insofar a metallic materials like HR coils are concerned, which are brought in truckloads or lorryloads to a factory, the same have got to be weighed on weighbridges. In this event, the error factor of the machines has to be reckoned while ascertaining the quantity of input received in the factory as held by the Tribunal in Bhuwalka case.
10. For the reasons stated hereinbefore, the decision of the Commissioner (Appeals) is sustained and this appeal is dismissed.
(Pronounced in court on ..) (M. Veeraiyan) Member (Technical) (P.G. Chacko) Member (Judicial) Sm 11