2007 (1) TMI 325 - AT - Central Excise

Summary

Issues:
1. Duty payment on free replacement parts/components supplied by the appellant.
2. Applicability of Cenvat credit rules.
3. Interpretation of Section 57F(3) of the Central Excise Act, 1944.

Analysis:

Issue 1: Duty payment on free replacement parts/components
The appellant supplied free replacement parts for air-conditioners to buyers for repairs. They had taken credit of duty paid on these parts when received but did not pay duty when cleared for repairs. The dispute arose regarding duty payment for the period from September 1993 to June 1998, with a demand of Rs. 5,03,912/- and penalty imposed. The appellant argued that the cost of free replacements was already included in the price of air-conditioners, which had suffered duty at the time of clearance. However, the Tribunal held that duty becomes payable when inputs are removed as free replacements and not used in manufacturing the final products. The condition for availing Cenvat credit is that inputs are used in manufacturing, which was not fulfilled in this case.

Issue 2: Applicability of Cenvat credit rules
The appellant contended that Rule 57F(3) was ultra vires to the provisions of the Act, as they were not the manufacturers of the inputs and thus not liable to pay excise duty on inputs. The Tribunal rejected this argument, stating that Cenvat credit is a concession available to manufacturers of final products, subject to prescribed conditions. The appellant's removal of inputs as free replacements without using them in manufacturing rendered duty payable, irrespective of the terminology used (duty or credit equivalent to duty).

Issue 3: Interpretation of Section 57F(3)
The Tribunal analyzed Section 57F(3) in light of the case, emphasizing that duty must be paid when inputs are cleared as such. The appellant's argument that the value of free replacement parts was already included in the value of air-conditioners was dismissed. The Tribunal clarified that duty paid by the manufacturer of inputs, taken as credit by the appellant, must be reversed if not utilized fully. The appeal was deemed devoid of merit, and the decision of the Commissioner (Appeals) was upheld, leading to the rejection of the appeal.

This judgment highlights the importance of complying with Cenvat credit rules and paying duty on inputs removed for purposes other than manufacturing final products, emphasizing the conditions for availing such concessions under the Central Excise Act, 1944.