2009 (10) TMI 743 - AT - Central Excise

CENVAT credit - rejected inputs - whether the respondent is eligible to avail the Cenvat credit in respect of inputs received and which were found defective at the time of processing? - Held that - It is explicitly indicated that the respondent had utilized the inputs in the manufacture of the final product, but such inputs got rejected at the time of testing before removal - the Commissioner has come to a factual finding that the cost which has been recovered them is a cost of the wasted inputs - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Availing benefit of Cenvat credit on rejected inputs.
2. Recovery of Cenvat credit by the department.
3. Appeal against Order-in-Original.
4. Interpretation of inputs rejection during manufacturing process.
5. Double benefit availed by the assessee.
6. Legal authority for recovery of Cenvat credit.
7. Application of previous judgments on similar facts.

Analysis:

1. The case involved a dispute regarding the availing of Cenvat credit on inputs rejected during the manufacturing process. The department issued a show cause notice to recover the credit availed on such rejected inputs, leading to an appeal against the Order-in-Original that confirmed the demand for credit recovery and imposed penalties.

2. The key argument presented was whether the rejected inputs were used in the manufacture of final products before being rejected, as the department contended that the credit availed on such inputs was irregular and amounted to double benefit for the assessee.

3. The learned Commissioner (Appeals) set aside the Order-in-Original, allowing the appeal filed by the respondent. The Commissioner found that the rejected inputs were cleared as waste on payment of duty, and the recovery of the cost of wasted inputs did not justify the reversal of Cenvat credit as the inputs had been used in the manufacturing process.

4. The decision was based on a factual finding that the recovered cost was specifically for the wasted inputs, and previous judgments, such as Final Order Nos. 1658-1659/2005, passed in similar circumstances, supported the respondent's position regarding the eligibility to avail Cenvat credit on rejected inputs used in the manufacturing process.

5. The Commissioner emphasized that the recovery of the cost of wasted inputs should not be a basis for denying the Cenvat credit, especially when the inputs had been utilized in the manufacturing of final products. The absence of legal authority for such recovery further supported the decision to uphold the appeal and reject the department's demand for credit recovery.

6. Ultimately, the appellate tribunal found no reason to interfere with the Commissioner's decision, deeming it correct, legal, and without any infirmity. The appeal was rejected, and the impugned order passed by the Commissioner (Appeals) was upheld, based on the detailed analysis and findings presented during the proceedings.