2012 (8) TMI 904 - AT - Central Excise

Duty demand - Penalty u/s 11AC - Disallowance of CENVAT Credit - Held that - Commissioner (Appeals) has fallen in error disallowing the Cenvat credit availed by the assessee company in respect of the excise duty paid on the blades and imposing penalty on the assessee company as well as its Prop. Sh. Govind Singh. - Decision in the case of CCEC & ST, Daman v. Prime Health Care Products reported in 2010 (10) TMI 881 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of Cenvat credit on blades packed in combo pack.
2. Imposition of penalty under Rule 26 of the Central Excise Rules, 2002.

Issue 1: Disallowance of Cenvat credit on blades packed in combo pack
The case involved M/s. G.S. Enterprises and its proprietor against an order partly allowing the appeal filed by the company and confirming a duty demand with penalties. The dispute arose from the appellant availing Cenvat credit on blades supplied free with razors in combo packs. The department contended that since the blades were supplied free, the Cenvat credit was wrongly availed. The adjudicating authority disallowed the credit, confirmed the demand, and imposed penalties. The Commissioner (Appeals) partly accepted the company's appeal, reducing the demand and penalties. The appellant argued that the combo pack constituted deemed manufacture under Section 2(f) of the Central Excise Act, treating blades as inputs. The appellant claimed the blades were accessories of the razor and eligible for Cenvat credit as per Rule 2(9) of the Cenvat Credit Rules, 2002.

Issue 2: Imposition of penalty under Rule 26 of the Central Excise Rules, 2002
The appellant challenged the penalty imposed on the company and its proprietor under Rule 26 of the Central Excise Rules, 2002. The Commissioner (Appeals) maintained the penalty on the proprietor but reduced the penalty on the company. The appellant contended that the impugned order was unsustainable due to incorrect appreciation of law and facts. The appellant argued that the blades in the combo pack were complimentary to the razor and should be considered inputs eligible for Cenvat credit. The department argued in favor of disallowing the credit, stating that since the blades were supplied free, the credit was rightly disallowed. The Tribunal referred to a similar case where the High Court allowed Cenvat credit on combo packs, emphasizing that packing and re-packing items together constituted manufacture, making the credit admissible.

In conclusion, the Tribunal held that the blades in the combo pack were eligible for Cenvat credit as they were accessories of the final product. The Tribunal found the impugned order erroneous in disallowing the credit and imposing penalties. Citing the precedent case, the Tribunal allowed the appeals, setting aside the impugned order and ruling in favor of the appellant company and its proprietor.