Input Service credit on Inputs lost during manufacturing

Inputs lost during manufacturing does not amount to receipt of Inputs in short quantity and accordingly whatever tax has been paid by Assessee on Inward Transportation service is entitled for Input Service credit

Mahanagar Gas Ltd. (the Appellant) was procuring gas from Gas Authority of India Ltd. (GAIL) through pipelines and the same was supplied through petrol pumps or through pipelines to the consumers.

The Appellant was availing Cenvat credit on Inputs and on Inward Transportation service and was paying duty on their final product.

At the end of the year, the Appellant maintained a Balance Sheet and an account for Measurement Tolerance in their Balance Sheet showing shortage of gas lost during the supply as final product.

The Revenue contended that since the shortage has occurred of Inputs, consequently the Input Service credit on transportation of such shortage Inputs stands denied to the Appellant. Accordingly, proceedings were initiated and demand was confirmed against the Appellant.

Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Mumbai and submitted that Cenvat credit on Inputs have not been denied on account of shortages but Input Service credit on transportation of these inputs have been denied by the Department which is not permissible. Moreover, the Measurement Tolerance has occurred on account of receipt of Inputs and supply of final products. In these circumstances, whatever shortage may occur that may be lost during the process of manufacturing. Therefore, Cenvat credit cannot be denied.

The Hon’ble CESTAT, Mumbai held that when there is no dispute regarding receipt of Inputs, therefore, whatever transportation has been paid by the

Appellant on Inward Transportation service are entitled for Input Service credit. It was further held that the Measurement Tolerance is on account of receipt of Inputs and supply of final products and in these terms, it cannot be said that the Appellant have received the Inputs in short quantity. Therefore, the Appellant is rightly entitled for full Cenvat credit of Service tax paid on Inward Transportation service.