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J.K. Files (India) Ltd V/S CCE & ST, Bhopal

    Appeal Nos. E/51006/2017-SM and E/51046/2017 (Arising out of Order-in-Appeal Nos. BHO-EXCUS-001-APP-698 and 699-16-17 dated 23.2.2017 passed by the Commissioner (Appeals), Customs, Central Excise and Service Tax, Bhopal) and Final Order Nos. 56731-56732/2017

    Decided On, 29 August 2017

    At, Customs Excise Service Tax Appellate Tribunal New Delhi

    By, THE HONORABLE JUSTICE: ASHOK JINDAL
    By, MEMBER

    For Petitioner: Manoj Chauhan, C.A. And For Respondents: Pardeep Juneja, A.R.



Judgment Text


1. The appellants are in appeal against the impugned orders wherein the Cenvat credit availed under Rule 16(1) of Central Excise Rules 2002 was denied to the appellant.

2. The brief facts of the case are that the appellant is manufacturing files and rasps clearing the same to their sister unit on payment of duty. As sister unit did not find up to the mark returned the said files for removing the defect to the appellant. The appellant availed Cenvat credit in terms of Rule 16(1) of Central Excise Rules, 2002 and after testing when it is found that the defects cannot be removed and they cannot reused, therefore, the same were cleared on payment of duty as a scrap. The case of the Revenue is that as these returned goods have been cleared as such therefore they are required to reverse the Cenvat credit availed on these returned goods under Rule 3(5) of Cenvat Credit Rules, 2004. The matter was adjudicated, the demand on account of reversal of Cenvat credit was confirmed. Aggrieved from the said order, the appellant is before me.

3. The ld. Consultant for the appellant submits that as these goods were found defective on testing and they were of no use of the appellant, therefore they were cleared as scrap on payment of duty. Therefore, in terms of Rule 16(2) they have complied the conditions laid down therein. Therefore, they are not r

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equired and cleared the goods to reverse the credit availed on those returned goods. In that circumstances the impugned order is to be set aside. He also relied on the decision of M/s. Tube Products of India v. CCE - 2016-TIOL-597-CESTAT-Mad.

4. On the other hand, ld. AR opposed the contention of the ld. Counsel and as submits that as this returned goods have not been processed and cleared as such therefore, in terms of Rule 3 (5) of Cenvat credit Rules, 2004 they are required to reverse the Cenvat credit availed on these returned goods.

5. Heard both sides and considered the submissions.

6. On careful consideration of submissions of both the sides, I find that in this case Cenvat credit has been demanded from the appellant on the premise that they have cleared the returned goods as such. Factually, it is incorrect. In fact, those returned goods have been tested by the appellant and found that these are scrap and cannot be reused which have been cleared on payment of duty. It is not the case of the Revenue that these goods have been cleared as such without payment of duty. In that circumstances when returned goods have been tested in their factory and found scrap which has been cleared on payment of duty. Therefore, provisions of Rule 3(5) of Cenvat Credit Rules 2004 are not attracted to the facts of this case. Further in the case Tube Products of India (supra), this Tribunal has observed as under:

"9. On perusal of the records we find that there is no dispute on the facts that certain quantities of finished goods were rejected and returned by the customers for various reasons and the Cenvat credit of duty paid was taken by the appellants under Rule 16(1) and subsequently the rejected goods were sold in auction as such and cleared on payment of duty on the transaction value in terms of second leg of sub-rule (2) of Rule 16. Revenue's contention is that the assessees should have paid the amount equal to the Cenvat credit taken at the time of receipt of the rejected goods in terms of first leg of sub-rule (2) of Rule 16. Whereas, the assessees contented that they have correctly paid the excise duty while removing the said goods and stated that they are covered under the second part of sub-rule (2) of Rule 16 under the term used "any other case" stated in the said sub-rule. We find that both sides sought to interpret the provisions of Rule 16 in their own way. The period of dispute is from 1.7.2001 to 30.6.2005 in the assessee's appeal and from July, 2007 to March, 2010 in the Revenue's appeals. Since the whole issue revolves on interpretation of Rule 16, the same is reproduced as under

"16 Credit of duty on goods brought to the factory.

(1) Where any goods on which duty has been paid at the time of removal thereof are subsequently returned to any factory for being re-made, refined, reconditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to have CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2001 and utilise this credit according to the said rules.

(2) If the process to which the goods are subjected before being returning does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods returned under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.

3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.

As seen from the above, we find that the sub-rule (1) stipulates circumstances under which duty paid goods can be returned to the factory and the assessee is entitled to take credit of duty paid on the said goods. The sub-rule (2) contemplates two situations (i) if the process undertaken by the assessee does not amount to manufacture, then they shall pay the amount equal to the Cenvat credit taken and (ii) in another case, the assessee pay duty on the returned goods as per the transaction value. In the instant case, it is established beyond doubt that no process has been carried out on the returned goods. Therefore, on the question of whether first part of sub-rule or the second part of sub-rule of Rule 16 is applicable, we find on the very same issue has been dealt in detail by the Tribunal's co-ordinate Bench, Mumbai in the case of M/s. Apollo Tyres Ltd. v. CCE, Pune-II (supra) allowed the appeal. The relevant paragraph of the Tribunal's order is reproduced below:

"4. I have given careful consideration to the submissions. The case on merits would rest on correct interpretation of Rule 16. This provision was examined by a Division Bench of this Tribunal in the case of Hindalco Industries Ltd. (supra), but in that case, the first clearances were rejected by the consignee and hence brought back to the assessee's factory. After undertaking certain processes, in which waste and scrap were generated, the assessee cleared such waste and scrap on payment of duty at the rate applicable on the date of removal. The Tribunal found that the waste/scrap did not arise out of any process of 'manufacture' and hence the credit taken by the assessee requires to be reversed under Rule 16(2). The Tribunal held that, if the process to which the goods returned by the original consignee were subjected to did not amount to 'manufacture', the amount of credit availed under sub-rule (1) of Rule 16 had to be reversed under sub-rule (2). In the instant case, the tubes returned by the original consignee were removed as such without any process whatsoever. Even the show-cause notice admits these facts. The question is whether the second clearances of the goods would be covered by the first part of sub-rule (2) of Rule 16 as canvassed by the Revenue or by the second part of the sub-rule as contended by the assessee. In this context, it is pertinent to note that the goods returned by the original assignee were admittedly received by the assessee under sub-rule (1). They were received in the assessee's factory "for being re-made, refined, re-conditioned or for any other reason". Learned SDR has chosen to read the underlined expression ejusdem generis with the preceding expressions (remade, refined, etc.). He means to say that, under sub-rule (1) of Rule 16, duty-paid goods returned by a customer can be brought back to the factory of production only for some kind of a process. On the other hand, the learned counsel has argued that such goods could be brought back into the factory of production for "any other reason" also. He submits, the appellant cleared the goods as such, for "logistic reasons", to other tyre-manufacturing units of the company. Learned counsel has endeavoured to fortify his arguments by referring to the expression, 'in any other case' found in the text of sub-rule (2).

5. In my view, one cannot overlook the manner in which sub-rule (2) opens. The sub-rule opens thus:

"If the process to which the goods are subjected before being removed...."
It appears to me that sub-rule (2) pre-supposes that the goods received by the assessee under sub-rule (1) should be subjected to some process. If this process does not amount to 'manufacture', the assessee shall pay an amount equal to the CENVAT credit taken under sub-rule (1), at the time of the second clearance. If the process amounts to 'manufacture', they shall pay duty at the appropriate rate based on the value determined under Section 4 of the Act. The expression 'in any other case' found in the second part of sub-rule (2) is significant. In my view, a case in which the manufacturer of final product receives the goods back from the customer under sub-rule (1) and removes the same as such without undertaking any process thereon is also covered by the second part of sub-rule (2). The expression 'any other case' is apparently wide enough to cover such a case. In the D-3 intimation given by the appellant to the department, the purpose of bringing the returned duty-paid goods back into their factory was shown as 'storage'. The appellant did not mention any 'process' in the D-3 intimation. In their reply to the show-cause notice also, they did not claim that the goods returned by the first consignee were subjected to any process before its second clearance to other units. Neither the original authority nor the first appellate authority entered any finding to the contra. In the order-in-original, on the other hand, there is an observation to the effect that the appellant had removed the goods as such without carrying out any process. The order-in-original was upheld by the Commissioner (Appeals). The appellate authority also recorded thus: "The fact that the goods did not undergo any process amounting to manufacture is not in dispute." Having so found, the lower authorities have demanded reversal of the CENVAT credit on the premise that the first part of sub-rule (2) of Rule 16 covers second clearances of finished goods as such without undertaking any process. I have already held that such second clearances, as in the instant case, are also covered by the expression 'any other case' figuring in the second part of sub-rule (2). It would follow that the duty paid by the appellant on their second clearances of tubes is in order and no additional amount of duty can be demanded from them.

6. In the result, the demand of duty is set aside on merits and consequently there can be no penalty on the appellant either. The appeal is allowed with consequential relief to the appellant".

Further, this Tribunal Bench in the case of Craftsman Automation (P) Ltd. v. CCE, Coimbatore (supra), in its order dated 27.4.2011 on identical issue followed the above decision and allowed the appeals. The relevant portion of this order is reproduced as under:

"2. I have heard both sides. Rule 16(2) stipulated that "if the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CEVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on the goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of Section 3 or Section 4 or Section 4A of the Act, as the case may be." The assessees have not subjected the returned goods to any process and, therefore, they are covered by the second limp of Rule 16(2). In the light of Tribunal's decision in Apollo Tyres Limited v. Commissioner of Central Excise, Pune-III - 2010-TIOL-549-CESTAT-MUM. The case law cited by learned SDR, namely, Shimoga Technologies Ltd. v. Commissioner of Central Excise, Mysore [2007 (208) ELT 31 (Tri.-Bang.) : 2006-TIOL-1807-CESTAT-Bang and Jinabakul Forge Pvt. Ltd. v. Commissioner of Central Excise, Belgaum [2007 (220) ELT 210 (Tri.-Bang.)] are distinguishable as in those cases, the rejected goods were subjected to some process].

3. Following the ratio of the Apollo Tyres decision, which is applicable on all fours to the facts of the present case, I set aside the impugned orders and allow the appeals.".

We are in agreement with the above decisions and the same are applicable to the present case as the issues are identical and the duty paid goods are rejected and returned to the factory of the assessee and without doing any processes the said goods were sold by auction to third party 'as is where is basis' and cleared on payment of excise duty on the transaction value as per Section 4 of the Central Excise duty."

7. In the light of decision of this Tribunal in the case of Tube Products of India (supra), I hold that the appellant is not required to reverse Cenvat credit equal to availed the Cenvat credit on these returned goods.

8. With these terms, the impugned orders are set aside. Appeals allowed with consequential relief
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