CESTAT Questions Denial of CENVAT Credit on Inox Air’s Evaporative Loss of Liquid Gases During Transit, Remands Matter [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) observed that the denial of CENVAT credit on account of evaporative loss of liquid gases during transit required fresh examination and remanded the matter to the adjudicating authority for reconsideration.

Inox Air Products Pvt. Ltd., the appellant, is engaged in the manufacture of industrial gases such as liquid nitrogen, liquid oxygen, and liquid argon and avails CENVAT credit under the CENVAT Credit Rules, 2004.

The department issued a show-cause notice alleging that the appellant had availed of full CENVAT credit on inputs, even though the actual quantity of gases received was less than the invoiced quantity due to short receipt, and proposed recovery of Rs. 2,76,984, along with interest and penalty.

The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order. Aggrieved by the decision, the appellant approached the CESTAT.

The appellant’s counsel argued that liquid gases are transported at extremely low temperatures in vacuum-insulated tanks, and a certain amount of evaporation and volume change is inevitable due to the physical nature of the goods. The counsel also submitted that such minor transit losses were normal and supported by earlier judicial decisions allowing credit in similar circumstances.

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The revenue’s counsel argued that the lower authorities rightly denied full credit since the actual quantity received was less than the quantity shown on invoices. They further argued that the matter should be remanded to the adjudicating authority, relying on an earlier CESTAT order in the appellant’s own case involving the same issue.

The two-member bench comprising Vasa Seshagiri Rao (Technical Member) and one accompanying Member observed that the issue was identical to one previously decided in the appellant’s earlier appeal, where the matter was remanded for verification of scientific and documentary evidence explaining the loss.

The tribunal pointed out that the lower authorities had not examined the appellant’s explanation regarding temperature variation and weighing scale differences. The tribunal explained that the issue should be reconsidered in line with its earlier decision and that a consistent approach was necessary.

The tribunal set aside the impugned order and remanded the case to the adjudicating authority to call for scientific and documentary evidence from the appellant and decide the issue afresh after providing a reasonable opportunity of hearing.

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