ORDER
Archana Wadhwa, Member (J)
1. The appellants are engaged in the manufacture of ICD Engines. PD Pumps and parts thereof falling under Chapter No. 84 and Gensets falling under Chapter 85 of Central Excise Tariff Act, 1985. The appellants are availing the Cenvat Credit facility. As per their Internal Audit Report for the year 2002-2003, there was a shortage of raw materials valued at Rs. 33.42 lakhs involving Cenvat Credit of Rs. 5,34,746/-. The Appellant’s Senior Executive (Commercial) Shri S.P. Ponde, accepted the Cost Audit Report to be binding on the company to submit that such shortage of raw material was not on account of any mis-utilisation but on account of various reasons. Reference was made to Cost Accountant’s letter dated 16-5-2004 detailing the reasons for such shortages.
2. However, the proceedings were initiated against them by way of issuance of show cause notice dated 15-12-2004 proposing reversal of Modvat credit. The said proceedings culminated into an order passed by the Joint Commissioner confirming the demand of duty and also imposing personal penalty of identical amount. Appeal against the above order did not succeed before the Commissioner (Appeals), hence the present appeal.
3. Nobody has appeared on behalf of the appellants. I have heard Shri P.K. Pardeshi, ld. DR.
4. The appellants have categorically stated before the authorities below that their production is voluminous and is to the extent of 142.52% of its installed capacity, the same involves complicated material movement and account system, as can be seen from the production flow chart. A sophisticated computerized accounting system to ensure maximum accuracy was introduced during the year 2002-2003 and during the implementation stage and due to transfer from old system, certain inaccuracies might have crept in. They also referred to excess inventory in the Cost Audit Report and pleaded for neutralizing the same against the shortages. If that is done the shortage would come to 0.2% of the total material consumed, which is insignificant in relation to the volume and nature of business. They also raised the following contention before the appellate authority:
that the show cause notice ignores the following salient points of M/s. Sharp and Tannan, Statutory Auditor reported on 20-7-2003.
(a) As explained to us, stock of finished goods, trading goods, stores, spare parts, components and raw materials have been physically verified by the management at reasonable intervals during the year, except for stock lying with third parties, in respect of which confirmation is obtained in most cases.
(b) As explained to us the procedure of physical verification of stock followed by management are, in our opinion, is reasonable and adequate in relation to the size of the company and nature of its business.
(c) No material discrepancies were noticed on physical verification of stocks of finished goods, trading goods, stores, spares parts, components raw materials as compared to book records.
(iv) That it is amply clear from the auditor’s report that the discrepancy, if any is not significant. The show cause notice also ignores letter CC/010/2004-05 dated 16th May 2004 issued by Shri Dhananjay v. Joshi and Co. Cost auditor submitted to the department. It is pertinent to bring to the notice of the Appellate authority the following points of the report.
(a) Thus the shortage may not necessarily mean physical disappearance of the material. Many times it is on account of error in documentation and non reporting of consumption, mainly due to exigencies of production.
(b) Thus it may concluded that para 19B of the Annexure to the cost audit report is more in the nature of MIS (management information system) oriented towards improving the overall performance and efficiency in the operations of the company. It does not necessarily reflect either the value of material excess or shortage exclusively on item to item basis.
(v) That the show cause notice does not take cognizance of the fact that the Cenvat is correctly availed by the appellant in line with Rule 3 of Cenvat Credit Rules, 2002 and reversal of such duty is applicable only on accounting error, omission or misconception. They place reliance upon the decision of the CESTAT Northern Bench in the case of Maruti Udyog Ltd. v. CCE, Delhi-III .
5. Dealing with the above submissions, the appellate authority has observed that Cost Audit Report is the appellant’s own document and is required to be believed. If there is deficiency in the same, which is not accounted for the appellants has to bear the consequences. As regards the appellants reliance on the Tribunal’s decision in the case of Maruti Udyog Ltd., the appellate authority observed that the said decision has not been accepted by the department and SLP stands filed there against before the Hon’ble Supreme Court.
6. I find that the fact that the total shortage of raw material is to the extent of 0.2% has not been disputed by the revenue. There is also no evidence on record to show that the raw material in question has either been cleared by the appellants clandestinely or has been consumed in the manufacture of the final products, cleared without payment of duty. No doubt, it is the assessee, who has to explain the shortages of the raw material, after having availed the credit, but the fact that the appellant was dealing with the huge raw material and voluminous production and was shifting the accounting method to new computerized programmers, has to be taken into the account. Further, the fact that the shortage was only to the extent of 0.2% of the total input received, has also to be kept in mind, being within the tolerance limit fixed by the efficient management. The Tribunal in the case of Maruti Udyog Ltd. v. CCE, Delhi-III dealt with more or less identical dispute and observed that in view of the huge and complex accounting problem, small factional variation in the inputs should be taken as normal commercial and, professional practices and if such shortages are within the tolerance limit, they should not be treated as unreasonable. Applying the ratio of the above decision to the fact of the instant case, especially in the absence of any evidence to the contrary, I find no justification for upholding the impugned order. The same is accordingly set aside and appeal allowed with consequential relief.
(Pronounced in Court on 15-11-06)