2013 (7) TMI 398 - AT - Central Excise

Stay Application Waiver of Pre-deposit - The CENVAT credits in question were denied on steel rounds, alloy steel rounds etc., which were fed into the manufacturing stream but rejected midway. The cost of such materials was recovered from the supplier - Department required the appellant to reverse the CENVAT credit which was taken on the said materials by the appellant treating them as inputs Held that - Two essential conditions of CENVAT credit on inputs are that the duty-paid nature of the goods should be established and that the goods should be shown to have been used in the manufacture of the finished products (final Products) - Materials were rejected midway and were not contained in the finished products - cannot be held to have been used in the manufacture of the final products Also, cost of the rejected materials was recovered by the assessee from their suppliers Moreover, the appellant not pleaded financial hardship - Directed to predeposit an amount of Rs.1,50,000/- (rupees one lakh fifty thousand only) - Waiver and stay in respect of the penalties imposed on them and the balance amount of CENVAT credit till the final disposal of the appeal.

Summary

Issues:
- Stay applications seeking waiver and stay in respect of adjudged dues including CENVAT credits denied on certain materials.
- Interpretation of Rule 3 of the CENVAT Credit Rules 2004 regarding recognition of materials as inputs.
- Determination of whether rejected materials can be considered as inputs for claiming CENVAT credit.
- Analysis of relevant case laws and their applicability to the present case.
- Requirement of predeposit amount and stay of penalties pending final disposal of the appeal.

Analysis:
1. The stay applications before the Appellate Tribunal sought waiver and stay concerning the adjudged dues, including CENVAT credits denied on specific materials. The disputed amounts were related to CENVAT credits disallowed for the period from March 2006 to March 2008 and March 2006 to January 2009, involving steel rounds and alloy steel rounds fed into the manufacturing process but rejected midway.

2. The core issue revolved around the interpretation of Rule 3 of the CENVAT Credit Rules 2004. The department contended that materials not integrated into the finished product could not be recognized as inputs, highlighting the potential for undue benefit if input duty credit was allowed when the cost of such materials had been recovered from the suppliers.

3. The Tribunal, after considering arguments from both sides, found no prima facie case for the appellant due to crucial reasons. Firstly, for CENVAT credit on inputs, it is essential to establish the duty-paid nature of goods used in manufacturing finished products. In this case, the rejected materials were not part of the finished products, thus failing to meet the criteria for input usage.

4. Additionally, the Tribunal differentiated the present case from precedents cited by the appellant's consultant. While previous cases involved scenarios where rejected components were cleared as scrap with duty payment, here, the rejected materials were recovered from suppliers without evidence of duty clearance. This distinction underscored the inapplicability of cited cases to the current situation.

5. As the appellant did not claim financial hardships, they were directed to predeposit a specified amount within a set timeframe. Upon compliance, the Tribunal granted waiver and stay for penalties imposed and the remaining CENVAT credit until the final disposal of the appeal, ensuring procedural fairness and adherence to legal requirements.