2010 (7) TMI 398 - AT - Central Excise

Cenvat credit inputs Removal of damaged cenvatted inputs Inputs cleared as such - Rule 3(5) of the CENVAT Credit Rules, 2004 only applies to input or capital goods cleared as such - provision for capital goods cleared as waste and scrap but no such provision has been made under the rules to deal with inputs becoming waste and scrap in the course of manufacture or in the course of use as packing material - In the absence of any legal requirement to reverse credit, appellants cannot be asked to reverse the credit taken on the inputs which they have put to use for the intended purpose but which have become torn and non-useable in the course of manufacture/use as packing material Appeal allowed

Summary

Issues:
1. Reversal of credit for damaged bags used in packing cement under Rule 3(5) of CENVAT Credit Rules, 2004.

Analysis:
The appeal involved a dispute regarding the reversal of credit for bags damaged during the packing of cement. The appellant argued that when bags are found defective, they are returned to suppliers and credit is reversed. However, bags damaged during cement packing are sold as scrap since they cannot be used again. The appellant contended that there is no provision in the rules for reversing credit on inputs that become waste or scrap during manufacturing or as packing materials. The appellant cited a previous decision in their favor to support their argument.

The respondent supported the impugned order, stating that credit reversal is required for bags cleared by the appellants under Rule 3(5) of the CENVAT Credit Rules, 2004. The respondent expressed concerns about potential misuse if credit reversal is not enforced.

After hearing both sides, the Member (T) analyzed Rule 3(5) of the CENVAT Credit Rules, 2004. It was noted that the rule applies to input or capital goods cleared as such, with a provision for capital goods cleared as waste and scrap. However, there is no specific provision for dealing with inputs that become waste or scrap during manufacturing or as packing material. Therefore, in the absence of a legal requirement to reverse credit in such cases, the appellants cannot be compelled to reverse the credit taken on inputs that became non-usable during the manufacturing or packing process.

In line with the precedent set by a previous decision of the Tribunal, the impugned order was set aside, and both appeals were allowed. The judgment clarified the application of Rule 3(5) in the context of damaged bags used in packing cement, emphasizing the absence of a specific provision for reversing credit in such situations.