2010 (1) TMI 1074 - AT - Central Excise

Summary

Issues:
1. Waiver of pre-deposit and stay of recovery in relation to duty and penalty imposed for denial of Cenvat credit on certain inputs used for quality control in R&D Laboratory.

Analysis:
The judgment addresses the application seeking waiver of pre-deposit and stay of recovery concerning duty and penalty amounting to Rs. 17,550/- each due to the denial of Cenvat credit on specific inputs utilized for quality control and allied purposes in the R&D Laboratory during June to November, 2007. The lower authorities contended that the materials used for quality control purposes could not be considered as used in or in relation to the manufacture of final products. However, considering the nature of the chemical reactions involved in the manufacturing process of organic and inorganic chemicals by the appellant, it was crucial to maintain constant quality control, necessitating the presence of an R&D Division. The definition of 'input' under Rule 2(k) of the Cenvat Credit Rules, 2004 encompasses a broad spectrum of materials, some of which are explicitly mentioned in the inclusive part of the definition. The materials falling under the main part of the definition are those directly or indirectly utilized in or in relation to the manufacture of final products. Quality control of the final product is deemed a process undertaken in relation to the manufacturing of final products. The appellant's case is supported by a decision of the Tribunal in Biddle Sawyer Ltd. v. Commissioner of Central Excise, Mumbai - 2004 (168) E.L.T. 119 (Tri.-Mumbai) and an older decision in Commissioner of Customs & Central Excise, Bhubaneswar-I v. Birla Tyres - 2001 (138) E.L.T. 168 (Tri.-Kolkata).

The judgment concludes that there exists a prima facie case in favor of the appellant against the duty demand and penalty imposition. Consequently, the waiver of pre-deposit and stay of recovery in relation to both duty and penalty is granted. The decision is based on the interpretation of the definition of 'input' under the Cenvat Credit Rules, 2004, and the relevance of quality control processes in the manufacturing of final products. The legal reasoning provided in the judgment aligns with the precedent set by previous Tribunal decisions, reinforcing the appellant's argument regarding the usage of inputs for quality control purposes. The judgment emphasizes the importance of maintaining quality standards in the manufacturing process, thereby justifying the waiver of pre-deposit and stay of recovery in this case.