Madras HC Upholds credit reversal; No escape against input ‘shortages’ shown as “consumption” at month-end

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HC upholds reversal of CENVAT credit against ‘shortage’ of inputs (for lubricating oil additives) shown in monthly stock taking report, thereby rejecting assessee’s stand that same was due to calibration & parallax errors,  vaporation, handling loss and difference in weighing methodologies; According to HC, since inputs have high viscosity and are not volatile in nature, there cannot be any evaporation loss even while heating them in storage tank, and if raw materials remain in pipeline in the continuous process, shortage can be one-time but not’continuous’ every month;

Remarks that 5.58% shortage is not negligible, while noticing that the records indicated no shortage or excess in respect of various inputs, in fact the book stock tallied exactly with physical stock for more than 70% of the period with not even a meagre variation except in case of few months; Rejects assessee’s argument that CENVAT Credit Rules do not provide for reversal of credit based on difference in measurement methodologies, finding that assessee had failed to justify shortage due to difference in actual weight and mass-flow meter; Consequently holds that, “when the inputs were not at all used in the process of manufacture, cenvat credit is not allowable”, while affirming invocation of extended limitation period owing to suppression of facts inasmuch as the assessee had deliberately shown shortage as consumption at end of month instead of recording it in books of account or intimating to Dept.

Citation: [TS-77-HC-2018(MAD)-EXC]