2007 (5) TMI 519 - AT - Central Excise

Cenvat/Modvat - Reversal of credit - rejected goods - Rule 16(2) of CER - Held that - when the rejected goods are cleared as scrap, Rule 16(2) comes into play. When the rejected goods are cleared as scrap, then the process to which the rejected goods are subjected does not amount to manufacture and in terms of Rule 16(2) in such a case, the manufacturer shall pay an amount equal to Cenvat credit taken under sub-rule (1) - In the present case, the Cenvat credit taken under sub-rule (1) is ₹ 1,14,351/-. This amount has to be paid to the Revenue in terms of Rule 16(2). Therefore the orders of the lower authorities are legal and proper - appeal dismissed - decided against appellant-assessee.

Summary

Issues:
Appeal against Order-in-Appeal for reversal of Cenvat credit on rejected goods cleared as scrap.

Analysis:
The appeal was filed against the Order-in-Appeal No. 216/2006-C.E., dated 13-7-2006, passed by the Commissioner of Central Excise (Appeals), Mangalore. The appellants availed Cenvat credits for rejected goods received back for repair from M/s. SKF India Ltd., Pune, and later cleared them as waste and scrap at a reduced price to M/s. Kalyani Carpenter Special Steel Ltd., Pune. The Revenue initiated action under Rule 16 of Central Excise Rules for the reversal of Cenvat credit along with interest. The Adjudicating authority confirmed the reversal of Rs. 1,14,315/- along with interest. The appeal to the Commissioner (Appeals) was rejected, leading to the current appeal. The Rule 16 of the Central Excise Rules, 2002 was central to the dispute, specifically focusing on the credit of duty on goods returned to the factory and the subsequent clearance of such goods as scrap.

The appellants contended that they were entitled to avail Cenvat credit under Rule 16(1) when they received back the rejected goods, which was accepted by the lower authorities. However, the issue arose when the rejected goods were cleared as scrap, triggering the application of Rule 16(2). Under Rule 16(2), if the process to which the goods are subjected does not amount to manufacture, the manufacturer is required to pay an amount equal to the Cenvat credit taken under sub-rule (1). In this case, the Cenvat credit taken under sub-rule (1) amounted to Rs. 1,14,351/-, which was to be paid to the Revenue as per Rule 16(2). The Tribunal found that the orders of the lower authorities were lawful and correct in applying Rule 16(2) for the reversal of credit when the rejected goods were cleared as scrap. It was also noted that the lower authorities had not exceeded the terms of the show cause notice, as the reason for the reversal of credit was clearly stated in the notice.

In conclusion, the Tribunal upheld the impugned order and dismissed the appeal, emphasizing the applicability of Rule 16(2) when rejected goods are cleared as scrap, necessitating the payment of the Cenvat credit taken under Rule 16(1). The decision was based on a strict interpretation of the Central Excise Rules and the specific provisions outlined therein, ensuring compliance with the statutory requirements governing the availing and reversal of Cenvat credit in such circumstances.