2015 (5) TMI 1011 - AT - Central Excise

Manufacture - whether the process to which the rejected goods are subjected to does not amount to manufacture and accordingly on removal of the goods as such the appellant was required to reverse the Cenvat credit availed? - extended period of limitation invoked - Held that - In the facts of the appellant s case it is evident that the processes of testing of such rejected goods after receipt does not amount to manufacture. As such it is held that the appellant is required to reverse the Cenvat credit availed under Rule 16(1) on the goods so removed/cleared. As regards invocation of extended period find that the appellant had made proper disclosure in its Books of Account and have also cleared goods on the proper invoice upon payment of duty and also the facts were declared in the ER-1 returns. There is no suppression and/or contumacious conduct found on the part of the appellant. Thus it is held that the extended period of limitation is not invocable. The demand is confined to the normal period from the date of show cause notice. Further the issue is interpretational in nature. Thus the penalty imposed is set aside. - Decided partly in favour of assessee

Summary

Issues:
1. Availing Cenvat credit on rejected goods subjected to process.
2. Applicability of Rule 16(2) of Central Excise Rules.
3. Invocation of extended period of limitation.
4. Interpretation of the term "manufacture" in the context of testing rejected goods.
5. Imposition of penalty under Section 11AC read with Rule 25 of Central Excise Rules.

Analysis:

Issue 1: Availing Cenvat credit on rejected goods subjected to process
The appellant, a manufacturer of motor vehicle parts, availed Cenvat credit on rejected duty paid goods, namely brass components. The Revenue contended that the process of converting rejected goods into scrap did not amount to manufacture, requiring the appellant to pay back the Cenvat credit. The appellant argued that the process of melting rejected goods into brass bars qualified for availing Cenvat credit, citing relevant case laws. The Tribunal held that the process of testing rejected goods after receipt did not amount to manufacture, thus requiring the appellant to reverse the Cenvat credit availed under Rule 16(1) on the cleared goods.

Issue 2: Applicability of Rule 16(2) of Central Excise Rules
The Revenue issued a show cause notice demanding payment under Rule 16(2) for the period Sept. 2005 to March 2009, alleging that the process on rejected goods did not constitute manufacture. The appellant contended that the demand was time-barred and disclosed the process in their returns and Books of Account. The Tribunal found no suppression or contumacious conduct, ruling that the extended period of limitation was not applicable, confining the demand to the normal period from the date of the show cause notice.

Issue 3: Invocation of extended period of limitation
The appellant argued that the majority of the demand was hit by limitation as they had informed the Revenue about the process of converting rejected goods into scrap. The Tribunal agreed that there was no suppression or contumacious conduct, leading to the conclusion that the extended period of limitation was not invocable.

Issue 4: Interpretation of the term "manufacture" in the context of testing rejected goods
The Tribunal analyzed whether the process of testing rejected goods constituted manufacture. It was held that the testing process did not amount to manufacture, leading to the requirement for the appellant to reverse the Cenvat credit availed under Rule 16(1) on the cleared goods.

Issue 5: Imposition of penalty under Section 11AC read with Rule 25 of Central Excise Rules
The Tribunal set aside the penalty imposed under Section 11AC read with Rule 25 of Central Excise Rules, considering the issue interpretational in nature and finding no suppression or contumacious conduct on the part of the appellant.

In conclusion, the appeal was allowed in part, with the appellant entitled to consequential relief in accordance with the law.