2010 (1) TMI 1105 - AT - Central Excise

CENVAT credit - Waste and scrap - whether BOPP film cleared by the appellants rejected and received back on which cenvat credit was taken if cutting and slitting is done on the same and used in the manufacture of granules cleared without payment of duty whether full cenvat credit is required to be reversed or it would be sufficient if duty is paid on the scrap captively used on the basis of value arrived at on scrap? - Held that - As per the provisions of Rule 16 of Cenvat Credit Rules if the process involved on the rejected goods does not amount to manufacture and if the resultant products are cleared the Cenvat credit taken on the resulted goods received back is required to be reversed. In the case before us it is seen that the appellant avails credit of the entire amount of the duty paid on rejected final products seeks to pay the duty only on the waste and scrap which at any stretch of imagination cannot be said to be arising out of a process of manufacture. We are of the view that the appellant cannot claim that the waste and scrap which arises from rejected goods are due to the process of manufacture as there is no manufacture involved in the process as is explained by the appellant before us as well as before the lower authorities. Accordingly we find that the impugned order to the extent it confirms the demand is correct and legal and does not require any interference. Appeal dismissed - decided against appellant.

Summary

Issues involved:
1. Whether the cutting and slitting of rejected BOPP films for the manufacture of granules amounts to manufacture.
2. Whether the duty demand and penalty imposed on the appellant are justified under Rule 25 of Central Excise Rules, 2002.

Comprehensive Analysis:
Issue 1:
The appellant, engaged in manufacturing BOPP films, received rejected final products for reprocessing, availing cenvat credit on the duty paid earlier. The rejected goods were processed into waste & scrap, including scrap generated during the manufacture of final products. This waste was used to manufacture Reprocessed Granules (RPG), either for internal use or cleared without duty payment. The department contended that the scrap from rejected goods required duty payment equal to the cenvat credit taken on those goods. The Tribunal analyzed previous decisions and ruled that the process of converting rejected BOPP films into scrap and granules constituted manufacturing. The Tribunal cited cases where reprocessing resulting in scrap was considered manufacturing, supporting the appellant's position. The Tribunal distinguished a case involving aluminium foils, emphasizing the manufacturing process involved in the present case. Ultimately, the Tribunal allowed the appeal, finding in favor of the appellant based on precedent and the manufacturing nature of the process.

Issue 2:
The duty demand and penalty imposed on the appellant were based on the department's interpretation of Rule 16 of Cenvat Credit Rules. The rule required reversal of cenvat credit if the process on rejected goods did not amount to manufacture. The Tribunal scrutinized the application of this rule in the appellant's case, where credit was availed on rejected final products but duty was paid only on resulting waste and scrap. The Tribunal found that the waste and scrap did not arise from a manufacturing process, as claimed by the appellant. However, the Tribunal noted discrepancies in the department's case and the appellant's defense, highlighting the lack of detailed discussion on whether the cutting and re-rolling of goods constituted manufacturing. Despite changes in the definition of manufacture for certain products, the Tribunal relied on previous decisions and the specific facts of the case to allow the appeal. The Tribunal concluded that the duty demand and penalty were not justified, granting consequential relief to the appellant.

In conclusion, the Tribunal's judgment favored the appellant, establishing that the process of converting rejected BOPP films into scrap and granules constituted manufacturing. The duty demand and penalty imposed by the department were deemed unjustified, with the Tribunal providing detailed analysis and referencing relevant legal precedents to support its decision.