2011 (12) TMI 503 - AT - Central Excise

Summary

Issues Involved:
1. Inadmissibility of CENVAT credit on late receipt of inputs in the factory.
2. Disallowance of CENVAT credit of Rs. 79,453.00 on inputs cleared without reversing the credit.
3. Imposition of penalties on the appellant and its Managing Director and General Manager.

Detailed Analysis:

1. Inadmissibility of CENVAT credit on late receipt of inputs in the factory:
The primary issue revolves around the appellant availing CENVAT credit on the Additional Duty of Customs (CVD) before the actual receipt of inputs (wooden logs and timbers) in their registered factory premises. The Department argued that this practice contravened Rules 4(1) and 3(4) of the CENVAT Credit Rules, 2004, which state that CENVAT credit can be taken only upon receipt of inputs in the factory. The appellant, however, contended that their log-yard, where the logs undergo pre-manufacturing processes such as curing and cutting, should be considered part of their factory under Section 2(e) of the Central Excise Act, 1944. The appellant further argued that their case falls under Rule 4(5) of the CENVAT Credit Rules, which allows for processing on job work basis outside the factory, with processed goods returning within 180 days. The Tribunal considered these arguments but emphasized that the log-yard was not registered as a factory and thus could not be treated as such. However, it acknowledged that procedural lapses in registration should not deny substantive rights to CENVAT credit if the inputs were duly received and used in manufacturing.

2. Disallowance of CENVAT credit of Rs. 79,453.00 on inputs cleared without reversing the credit:
The appellant did not contest the disallowance of CENVAT credit amounting to Rs. 79,453.00 for inputs cleared without reversing the credit. This part of the order was upheld by the Tribunal.

3. Imposition of penalties on the appellant and its Managing Director and General Manager:
The penalties imposed by the Commissioner included Rs. 1,72,88,203.00 equivalent to the disallowed CENVAT credit, Rs. 5,87,85,830.00 for duty paid using inadmissible credit, and personal penalties of Rs. 50 lakh and Rs. 25 lakh on the Managing Director and General Manager, respectively. The Tribunal decided to remand the case for de novo consideration of these penalties, contingent on the outcome of the main issue regarding the admissibility of CENVAT credit.

Conclusion:
The Tribunal remanded the case back to the adjudicating authority for fresh consideration, setting aside the impugned order except for the disallowance of CENVAT credit of Rs. 79,453.00 and the corresponding penalty, which were not contested by the appellant. The Tribunal emphasized the need for a detailed examination of records to verify the proper accounting of inputs from the log-yard to the factory. The appeals were partly allowed by way of remand, keeping all other issues open for reconsideration.