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excise on normal loss

Mohan (25 Points)

10 May 2007

we have made a purchase of 100 kg of a material on which excise paid is 5000. but the actual material received is 95 kg due to normal loss. now can i claim full amount of CENVAT of this.

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3 Replies

Sanjay Dwivedi (Advocate & Consultant) (143 Points)
Replied 10 May 2007

Dear Friend,

The general principle is that if the input cannot enter the manufacturing stream, then Cenvat Credit is not available (on that much quantity). But credit is not denied if the loss occurs during course of manufacture. Obviously, loss before the goods are received in the factory is not a loss during course of manufacture.

Therefore, if the inputs are lost prior to receipt in the factory or are lost during storage/ handling, the Cenvat Credit has to be proportionately reduced.

However, we may note following two things:

1. Once the input enters the manufacturing stream, credit becomes available even if the same are later destroyed or lost at the intermediate stage. [Refer Tribunal's decision in Asmaco Plastic Industries v. CCE - 1998 (100) ELT 129 and CCE v. HEG Ltd. - 2001 (127) E.L.T. 121]

2. If the measurement of the input reduces due to natural causes - but entire quantity is actually received - Credit cannot be denied. For example if the input looses moisture due to drying and thereby reduces in weight, it does not amount to loss of the goods. [Pls refer PKPN Spinning Ltd. v. CCE - 1997 (89) ELT 588.]

For a detailed discussion pls refer the larger bench order in CCE, NAGPUR v. ASSOCIATED CEMENT COMPANIES LTD. [2006-(197)-ELT -0215 -TRIB]

Thanks,
Sanjay Dwivedi

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CA. Mohit Jain (Chartered Accountant) (21 Points)
Replied 01 June 2007

Excise duty paid on the material purchased which is lost during the transit is not available for CENVAT credit. The duty on material lost in the process of manufactuing can only be allowed for CENVAT credit & in no ways the duty paid on the goods lost in transit can be allowed for CENVAT credit.

(Guest)

Hi, Excise duty paid on the material purchased production is lost before production of goods is not available for CENVAT credit. Because still you not used raw material for production of goods(Case Law Maruti Udyog ltd 2000). Input definition clearly says that "An item is an input if it is used in or in relation to manufacture of final product" Cenvat credit is available to goods produced in the factory. Raw materials are treated as stock of rawmaterial not treated as goods used for production. The duty on material lost in the process of manufacturing can only be allowed for CENVAT credit & in no ways the duty paid on the goods lost before production can be allowed for CENVAT credit.