Commissioner of C. Ex. and Customs vs Narendra Impex

Harsha Devani, J.—Leave to substitute the proposed questions.

In this appeal u/s 35(G) of the Central Excise Act, 1944 (the Act), the Appellant-revenue has challenged the order dated 20-8-2008 passed by the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) by proposing the following two questions.

Whether the Income Tax Appellate Tribunal committed error in not considering the aspect that income tax return in the form of 3-CD Tax Reports are in nature of statutory admission of Assessee about short receipt of inputs and binding to Assessee?

Whether the Income Tax Appellate Tribunal committed error in not appreciating that there was no detail of loss of raw material while manufacturing goods?

The Respondent-Assessee is engaged in manufacturing Plastic Lay Flat Tubing, plastic films, plastic bags etc. falling under Chapter 39 of the Central Excise Tariff Act, 1985. During the course of audit, it was observed that the Assessee had furnished Form No. 3-CD u/s 44AB of the Income Tax Act, 1961 to the Income Tax Department, which revealed that the Assessee has received short quantity of raw material, that is, plastic powder and granules which had not been in stock accounts of inputs. Under the provisions of Rules 57A and 57AB of the erstwhile Central Excise Rules, 1944 (the Rules) and Rule 3 of the CENVAT Credit Rules, 2001-2002, the manufacturer or producer of final product is entitled to take credit of duty paid on any inputs or capital goods received in the factory. Since it appeared that the Assessee had wrongly availed of CENVAT credit of such short quantity of raw material and proportionately wrongly availed CENVAT credit, show cause notice came to be issued to the Assessee proposing to recover CENVAT credit of Rs. 2,19,333/- along with interest and penalty. The show cause notice came to be adjudicated vide Order-In-Original dated 27-1-2006 whereby the adjudicating authority dropped the proceedings pursuant to the show cause notice. Being aggrieved, the revenue carried the matter in appeal before the Commissioner (Appeals), who vide order dated 1-3-2008 allowed, the appeal of the revenue and held that the Respondent-Assessee had wrongly availed CENVAT credit which was not admissible to it and accordingly confirmed the demand of CENVAT credit along with the interest and also imposed penalty under Rules 57-1 and 57AH of the Rules and Rule 12 of the CENVAT Credit Rules, 2001/2002 read with Section 11A(1) of the Act. Against the order of the Commissioner (Appeals), the Assessee preferred appeal before the Tribunal, which came to be allowed vide the impugned order [2009 (238) E.L.T. 497 (Tri. - Ahmd.)].

Assailing the impugned order of the Tribunal, Ms. Naynaben K. Gadhvi, learned Standing Counsel for the Appellant submitted that the Respondent-Assessee had submitted 3-CD Tax Report prepared by the Chartered Accountant wherein it was admitted that raw material had been received in short quantity. That despite opportunity having been granted by the Commissioner (Appeals), the Assessee did not make out any case to show mat the raw material had in fact not been received in short quantity as stated in the 3-CD Tax Report. It was submitted that Form 3-CD u/s 44AB of the Income Tax Act, 1961 is a valid and statutory document and as such, the Assessee was bound by what was stated therein. That in absence of any evidence being produced by the Assessee to indicate that the disputed short quantity of raw material was due to process loss, the Commissioner (Appeals) had rightly held that the Assessee had wrongly availed of the CENVAT credit and that the Tribunal was not justified in setting aside the order passed by the Commissioner (Appeals).

A perusal of the order made by the adjudicating authority indicates that the adjudicating authority has applied its mind to the fact as to whether the shortage in the quantity of inputs mentioned in the Form 3-CD Tax Audit report pertains to the quantity of inputs short received by the Assessee or as to whether the said quantity represents the quantity of process loss and shortage on account of weight variations, etc. The adjudicating authority has, thereafter noted that it is an undisputed position that the CENVAT credit on process loss is admissible and cannot be denied. That the point to be considered was as to whether there was Short receipt of raw material or the shortage was on account of manufacturing/process loss. That the department''s case was based purely on the 3-CD Tax Audit Report and that there was no corroborative evidence to establish that the shortage was on account of short receipt of raw material. It was further observed that various Tribunals have time and again held that if raw material is received, the manufacturer or producer of final product is entitled to take credit of the duty paid on any inputs received in the factory. The adjudicating authority has further noted that the blow molding process of the manufacture of plastic granules requires the granules to be heated for melting, which results in certain process losses, which has been considered to be acceptable by the Board. It has further noted that the onus to prove that the raw material was short received lies on the department and there was no conclusive evidence available on record to establish that the raw material was short received/not received by the Assessee. It is in the light of the aforesaid findings recorded by it that the Adjudicating Authority has dropped the proceedings initiated pursuant to the show cause notice.

The Commissioner (Appeals) has allowed the appeal filed by the revenue mainly on the ground that the Form 3-CD u/s 44AB of the Income Tax Act, 1961 is a valid and statutory document and has laid the onus on the Assessee to prove that the disputed short quantity of raw material was due to process loss. On going through the entire order of the Commissioner (Appeals), it is noticed that despite specific findings having been recorded by the Adjudicating Authority, the Commissioner (Appeals) has failed to deal with the same and has allowed the appeal merely on the ground that in the 3-CD Tax Report prepared by the Chartered Accountants, short quantity of raw material had been admitted.

As can be seen from the impugned order of the Tribunal, the Tribunal has, upon appreciation of the evidence on record, found that the entire case of the revenue was based upon shortage in respect of quantity of inputs mentioned in the 3-CD Income Tax Return. That the Adjudicating Authority had found that except for the above, there was no other corroborative evidence to establish that the shortage was on account of short receipt of raw material. The Assessee had availed of credit of the duty as reflected in the invoices for the inputs. There was no allegation that the credit availed by it was in excess of the duty paid by the supplier of the inputs. The Tribunal further found that there was some process loss during blow moulding process and that the loss claimed by the Assessee was not on the higher side. The Tribunal observed that the Commissioner (Appeals) had proceeded on assumptions and presumptions and not on the basis of any evidence showing less receipt of raw material in the Assessee''s factory and was of the view that the benefit of yield loss was required to be extended to the Assessee.

Thus, the undisputed facts of the case are that except for the 3-CD Income Tax Return, there is no evidence on record to indicate that there was in fact shortage of raw material on account of short receipt thereof; and that the Assessee had availed credit of duty as reflected in the invoices for the inputs. It was also found that during the process of blow moulding some process loss was likely to occur during and that the loss claimed by the Assessee was not on the higher side. Thus, it is not in dispute that there is no diversion of goods covered under the invoices in question and that the entire inputs received have been used as inputs in the end product manufactured by the Assessee and have not been put to any other use. The mode of proof of quantity and payment of duty on inputs received and used as input is by producing invoices. Unless the invoices are found to be wrong or diversion of inputs received under any invoice to any other use is found, the Assessee is entitled to avail of the CENVAT credit in terms of the invoices issued by the supplier. In the absence of any evidence to indicate short receipt of material, merely because there is some discrepancy between the quantity stated in the invoice and that shown in the 3-CD report, it cannot be presumed that there was in fact short receipt of raw material.

In the light of the aforesaid discussion, it is not possible to state that the conclusion arrived at by the Tribunal is in any manner unreasonable, so as to warrant interference.

No question of law, as proposed or otherwise, much less, a substantial question of law, can be stated to arise out of the impugned order of the Tribunal. The appeal is, accordingly, dismissed.