2024-VIL-1639-CESTAT-KOL-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Valuation, Cenvat Credit, Shortage of goods- Appellant's sister concern set up its manufacturing facilities adjacent to the appellant's factory and used the liquid resin manufactured by the appellant as input. The appellant also used sister concerns' facilities to manufacture resin powder from the liquid resin manufactured by it - Department alleged that the appellant under-valued the goods cleared to its own unit and to its sister concern, wrongly availed Cenvat credit, and that there were shortages of finished goods found during stock verification - Whether Rule 8 of the Valuation Rules was applicable to the stock transfer of goods to the appellant's own unit and sale to its sister concern, or whether Rule 11 (Best Judgment Method) was the appropriate valuation method – HELD - Rule 8 of the Valuation Rules would be applicable only when the entire goods are captively consumed, but in the present case, the appellant had partly consumed the goods captively and partly cleared the same to its sister unit. Since none of the Valuation Rules from Rule 4 to 10A covered this situation, the appellant had rightly adopted Rule 11 (Best Judgment Method) for valuation. Further, as the duty paid by the appellant would be available as Cenvat credit to its sister unit, the exercise was revenue-neutral, and the demand relating to stock transfer and relating to sale to sister unit was set aside – appeal is allowed - Whether the appellant had correctly determined the cost of inputs like formaldehyde and melamine, and the conversion cost for Strong Bond M-3 – HELD - the Adjudicating Authority had incorrectly taken the balance sheet figures for determining the cost of inputs, which included miscellaneous overheads and were lesser than the actual prices adopted by the appellant. Further, the decrease in conversion cost for Strong Bond M-3 was due to market forces and BIFR proceedings, and the appellant had acted bonafide. Therefore, the demand is set aside on this ground - Whether the appellant was entitled to Cenvat credit on the basis of endorsed invoices/bills of entry – HELD - the appellant was entitled to Cenvat credit on the basis of endorsed invoices/bills of entry, as the goods had been received and used in the manufacture of final products, and there was no allegation of diversion of the goods. Accordingly, the demands are set aside - Whether the allegation of shortage of finished goods was sustainable – HELD - the method of stock verification adopted by the Department was not proper, as no Panchnama or weighment slips were prepared, and it was not possible to conduct physical verification of such a large quantity in a short span of time. Further, the shortage was partly attributable to non-updation of books of accounts and captive consumption, and the overall shortage was negligible. Therefore, the demand on account of shortage of finished goods is set aside.
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