2007 (2) TMI 22 - AT - Central Excise

Cenvat/Modvat Alleged that credit is inadmissible in the defective goods converted in the form of scrap and accordingly appellant is require to pay the amount equal to cenvat credit After considering all the detail authority allow the appeal partly

Summary

Issues:
Admissibility of credit on piston rings initially cleared on payment of duty, brought back to the factory, converted into scrap, and sold under Rule 16 of the Cenvat Credit Rules.

Analysis:
The judgment addresses the common issue of determining the admissibility of credit on piston rings under Rule 16 of the Cenvat Credit Rules. Rule 16 allows for the credit of duty on goods brought back to the factory for re-making, refining, or other reasons. However, the Tribunal's decision in a previous case established that the process of reducing defective goods to scrap does not amount to manufacture. Consequently, under Rule 16(2), the assessee is required to pay an amount equal to the Cenvat credit taken. The duty demands of Rs.7,70,692/- and Rs.2,36,438/- were upheld based on this interpretation.

The judgment also addresses the issue of limitation regarding the demand of Rs.7,70,692/-. The plea that the demand is barred by limitation was rejected due to the assessee's failure to disclose the process of cutting and scrapping the defective piston rings to the excise authorities. As a result, the extended period of limitation was deemed applicable, and the penalty was considered sustainable. However, the penalty was reduced from the amount equal to duty to Rs.2,00,000/- in Appeal No. E/3897/05, considering the facts and circumstances of the case.

Regarding the penalty of Rs.25,000/- in Appeal No. E/366/06, since the demand fell within the normal period of limitation and the issue related to the interpretation of rules, no penalty was imposed. The penalty was set aside in this appeal.

In conclusion, both appeals were partly allowed by upholding the duty demands, reducing the penalty in Appeal No. E/3897/05, and setting aside the penalty in Appeal No. E/366/06. The judgment was pronounced in court on 2-2-2007.