2011 (3) TMI 1195 - AT - Central Excise

Rebate claim allowed in part Cenvat credit denied - as per dept. the bought out items have also been cleared by the appellant under the guise of manufacture of goods and these were basically in the form of spares and the assessee had availed CENVAT credit on these goods - Held that - There is no dispute about the fact that the cost of the bought out parts have been included in the value of the machinery which has been ultimately exported and forms very much part of the machinery. Further whatever credit has been taken the duty liability has been discharged on a value inclusive of such bought out parts and on that ground also the demand for reversal of the CENVAT credit does not sustain. It should also be observed herein that the transaction in the instant case is that of exports and it is the avowed policy of the government to promote export by relieving the burden of taxes on the products exported and also on the products consumed in the manufacture of the goods exported. Therefore the rules whether they be CENVAT Credit Rules or Central Excise Rules have to be read harmoniously to give effect to this objective. Thus in the instant case apart from the fact that the appellant is rightly entitled to the CENVAT credit on the goods exported even from a policy perspective such credit is permissible. In favour of assessee.

Summary

Issues involved:
1. Disallowance of CENVAT credit on bought out parts used in the manufacture of machinery.
2. Rejection of rebate claim under Rule 18 of the Central Excise Rules, 2002.

Analysis:

1. Disallowance of CENVAT credit on bought out parts:
The appellant, engaged in the manufacture of machinery, had exported goods under a rebate claim. The Commissioner disallowed the CENVAT credit on bought out parts, treating them as spares not used in manufacturing. The department argued that since the parts were cleared as spares, CENVAT credit was not permissible. However, the appellant relied on precedents and circulars to support their claim. The Tribunal noted that the bought out parts were exported as part of complete machinery, following a previous decision in the appellant's favor. The Tribunal also referenced a circular stating that even if inputs are removed as such, they could be exported under claim for rebate with CENVAT credit available. The Tribunal emphasized that the demand for reversal of CENVAT credit was not sustainable, considering the revenue-neutral consequences and the promotion of exports by relieving tax burdens.

2. Rejection of rebate claim:
The Commissioner rejected the rebate claim, citing non-usage of bought out parts in manufacturing. However, the appellant argued that the parts formed part of the machinery exported, supported by a favorable order from the Assistant Commissioner. The Tribunal found in favor of the appellant, emphasizing that the bought out parts were part of the complete machinery exported. The Tribunal also highlighted the policy objective of promoting exports by relieving tax burdens, supporting the appellant's entitlement to CENVAT credit on exported goods.

In conclusion, the Tribunal allowed the appeal, setting aside the Commissioner's order and ruling in favor of the appellant based on the classification of bought out parts as part of the machinery exported and the policy objective of promoting exports.