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Harita Seating Systems Ltd V/S Commissioner of Central Excise, Salem

    Appeal No. E/42087/2017 (Arising out of Order-in-Appeal No. 142/2017 (CXA-I) dt. 31.05.2017 passed by the Commissioner of Central Excise (Appeals-I), Chennai) and Final Order No. 42432/2017

    Decided On, 27 October 2017

    At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai

    By, MEMBER

    For Petitioner: S. Sridevi, Advocate And For Respondents: S. Govindarajan, AC (AR)

Judgment Text

1. The brief facts of the case are that appellants are manufacturers of seats for motor vehicles. They are availing cenvat credit of duty paid on inputs/capital goods and service tax paid on input services. During audit of accounts, it was noticed by the department that they had made provisions namely consumption-Phy.Inv.Diff-Dire.Mati-others" in their ledger and accounted the stock for shortages/excesses. Such provisional entries were made after completion of periodical initial stock takings. Verification further reveals that there was shortage of invoice value at Rs. 7.88 lakhs during 3rd and 4th quarter of financial year for the period 2015-16.

A show cause notice was issued proposing to recover credit availed on the inputs found short to the tune of Rs. 98,540/- along with interest and also proposing to impose penalty. After due process of law, original authority confirmed the demand along with interest and also imposed penalties. In appeal, the Commissioner (Appeals) upheld the same. Hence this appeal.

2. On behalf of appellant, ld. Counsel Ms. S. Sridevi explained that appellants are manufacturers of automobile seats and various inputs are used for the same, based on fixed norms; that due to minor variation in the seats effected at the instance of customers or due to their intention of improving marketability of seats; that they used certain deputy inputs; that for the production process, the appellants require inventory items of more than 4000 in numbers which are primarily codified in their SAP system; that on day to day basis consumption is accounted based on pre-determined norms for each product which is known as back flushing method; that parts/inputs on which already credit is taken are small parts which are received in numbers and it is not possible to verify the same by accounting its numbers. Since they knew the average weight of tiny and small parts which were received in numbers, they issued them in kg basis for operational convenience and would account the same in numbers by work back. While doing so, there is possibility of excess or short issue/supply due to difference in the actual weight of the stock and that is one of the reasons for the difference in the stock. The department has noticed only minor shortages in the stock which comes to about 0.068% for 3rd quarter 2015-16 and 0.42% for the 4th quarter of the same financial year. Without taking into consideration the fact that there were also excess stocks of the same stock, the SCN has been issued proposing to recover demand for the shortages noticed. She relied upon decision in the case of CCE Vs. Maruti Suzuki India Ltd : 2015 (319) ELT 549 (SC) and pleaded that in the said case a shortage of inputs to the tune of Rs. 25.67 crores were found and there was also excess of inputs to the tune of Rs. 27.59 crores for the same period and demand was made for the shortage of 0.24%. The Hon'ble Apex Court has taken a view that it cannot be considered as clandestine removal of inputs and that demand has been rightly set aside by the Tribunal. She also adverted to the appellants own case for a different period on the same issue whereby the Tribunal has set aside the demand.

3. Against this Ld. A.R. Shri S. Govindarajan reiterated the findings of the impugned order. He submitted that the parts/inputs on which credit is availed is known by its numbers and SAP system is so accurate that the shortage cannot occur. Appellant has not been able to give plausible explanation as to the shortages and therefore demand raised is legal and proper.

4. Heard both sides. From the submissions made by both sides, it is clear that there is no allegation that parts on which credit has been taken were removed from the factory. The shortage, if any, has occurred only in the accounting system. The Ld. Counsel for appellant has explained the manner in which the inputs are issued for production as well as how they are being accounted. In the appellants own case for the different period demand raised for such shortage has been considered by the Tribunal and has set aside the demand. The discussions made by Tribunal in the said Final Order No. 41461-41462/2017 dt. 4.8.2017 is noteworthy and reproduced as under:

"2. After hearing both sides and after going through the impugned order, I find that the total net shortage compared to inventory was only 0.56%. They contended that such small percentage of shortage has occurred on account of the fact that the credit was taken on the basis of numbers whereas at the time of issuance of the inputs, the same was done on the basis of weight. The appellants contended that their being no proof or allegation for clearance of the raw materials from their factory, the denial of credit is not justified. They relied upon the Tribunal's decision in the case of Maruti Udyog Ltd. Vs. Commissioner of Central Excise, Delhi-III reported as : 2004 (173) E.L.T. 382 (Tri.-Del.). The Commissioner has not followed the said decision on the ground that Bombay High Court has not approved the ratio of law, in the decision reported as Commissioner of Central Excise & Customs, Aurangabad Vs. Greaves Cotton Ltd. reported as : 2008 (225) E.L.T. 198 (Bom.).

3. However, it is seen that being aggrieved with the decision of the Tribunal in the case of Maruti Suzuki Ltd., the Revenue filed an appeal there against before the Hon'ble Supreme Court. The Hon'ble Apex Court in their decision reported as Commissioner of Central Excise Vs. Maruti Suzuki India Ltd. reported as : 2015 (319) E.L.T. 549 (S.C.) has rejected the Revenue's appeal on the ground that such shortages of inputs are due

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to accounting error and there being no physical shortage with any allegation of clandestine removal, the credit cannot be disallowed. Inasmuch as, the Tribunal's decision in the case of Maruti Suzuki India Ltd. (supra) stands approved by the Hon'ble Supreme court, and the issue stands finally decided, I find no merits in the impugned orders of the authorities below. The same is accordingly set aside and appeal allowed with consequential relief." 5. Following the same, I am of the view that the demand raised is unsustainable. Impugned order is set aside. Appeal is allowed with consequential relief, if any, as per law.