2012 (11) TMI 996 - AT - Central Excise

Rebate - manufacture of man-made fabrics alleged that appellant is not entitled for Cenvat credit on the hangers and booklet inasmuch as they have not been used as inputs in or in relation to the manufacture of the final products Held that - Hangers are nothing but packing material in which the fabrics have been placed and, therefore, they are inputs as per Rule 2(k) of the Cenvat Credit Rules, 2004 and rightly eligible for the Cenvat Credit. As regards, the booklet containing the designs, the same has been used in the manufacture of fabrics exported; without the designs, the fabrics could not have been manufactured. Therefore, drawings and designs are essential inputs in or in relation to the manufacture of the final products. Therefore, they qualify as inputs eligible for Cenvat Credit under rule 2(k) of the Cenvat Credit Rules, 2004. Even it is held that they are not inputs, these goods have been exported along with fabrics as such on payment of duty and, therefore, on export of goods they are rightly entitled for the credit

Summary

Issues:
- Entitlement to Cenvat credit on imported hangers and sample booklets used in manufacturing.
- Eligibility for Cenvat credit on exported goods under Rule 18 of Cenvat Credit Rules, 2002.

Analysis:
1. The appeal challenged the order-in-appeal passed by the Commissioner of Central Excise (Appeals), Mumbai, regarding the appellant's entitlement to Cenvat credit on imported hangers and sample booklets used in manufacturing man-made fabrics.

2. The appellant, a manufacturer of man-made fabrics, imported hangers and sample booklets containing designs for manufacturing final products. They availed Cenvat credit on the additional duty of Customs paid on these inputs and later exported the finished goods under a rebate claim.

3. The department contended that the appellant was not entitled to Cenvat credit on hangers and booklets as they were not used directly in manufacturing the final products. A demand for the credit availed, along with penalties, was made. The appellant challenged this decision.

4. The appellant's advocate argued that hangers, considered packing materials, and booklets with designs were essential inputs for manufacturing the fabrics. Referring to a judgment of the Bombay High Court, the advocate asserted that even if these items were not physically contained in the final products, they were crucial for the manufacturing process and thus eligible for Cenvat credit.

5. The Revenue's representative reiterated the lower authorities' findings, opposing the appellant's claim for Cenvat credit on the hangers and booklets.

6. The judge carefully considered the arguments presented. It was determined that hangers, being packing materials, and booklets with designs were indeed eligible as inputs under Rule 2(k) of the Cenvat Credit Rules, 2004. The judge emphasized that the designs were indispensable for manufacturing the exported fabrics, making them eligible for Cenvat credit.

7. Additionally, the judge referenced a judgment of the Bombay High Court, stating that duty paid by reversing credit does not lose its character, and if rebate is otherwise allowable, it cannot be denied. Accordingly, the judge set aside the impugned order, allowing the appeal and granting consequential relief, if applicable.