2014 (1) TMI 5 - AT - Central Excise

Availability of cenvat credit of duty paid on its returned goods Held that - Provisions of Rule 16 is a beneficial piece of legislation allowing the manufacturer to avail the credit of duty in case of return of goods which were originally cleared by him on payment of duty - The safeguard for such availment of credit stands prescribed by way of trade notice and clarifications - As long as goods are received back under the cover of duty paying documents, which are easily co-relatable to the received back goods, no further insistence on identification marks is required - The goods are insecticides and pesticides, which do not carry any such manufacturing number or any other identification marks - It is not necessary that the entire packing cleared by the appellant would get damage and it may happen in certain cases that part of the certain goods gets damage - only a part of the goods are returned back to the appellant - Insistence on the fact that entire goods in the original packing should go back, would defeat the very purpose of Rule 16 - Rule 16 would become otiose in respect of number of goods manufacturer inasmuch as most of the goods do not carry any identification marks on them - it is the chemicals which do not carry any marks etc. the same can be identifiable with the original clearance only on the basis of original duty paying documents and the Revenue s insistence on the identification particulars cannot be appreciated. the appellants have produced on record the detailed chart showing co-relation of each of the returned consignment with the original clearance - Revenue intended to make a case under Rule 16 Central Excise Rules 2001, it proceeded to make allegation under Rule 7 of Cenvat Credit Rules 2001 - Rule 7 lends support to Rule 16 - But substantial allegation when appears to be under Rule 16 adjudication proceeded to examine technicality of that Rule without testing the principal allegation decided in favour of Assessee.

Issues Involved:
1. Eligibility for Cenvat credit on returned goods.
2. Validity of documents for availing Cenvat credit under Rule 7 of the Cenvat Credit Rules.
3. Verification of duty-paid character of returned goods.
4. Computation error in the show cause notice.
5. Applicability of Rule 16 of the Central Excise Rules.

Issue-wise Detailed Analysis:

1. Eligibility for Cenvat Credit on Returned Goods:
The appellants, manufacturers of pesticides/insecticides, availed Cenvat credit on returned goods. The Revenue argued that the returned goods were not in the same packing and lacked batch numbers, making verification difficult. The Tribunal found that Rule 16 allows credit for duty-paid goods returned for remaking or reconditioning. The appellants contended that they correctly availed credit as the goods were duty-paid, and the documents provided were sufficient for verification.

2. Validity of Documents for Availing Cenvat Credit under Rule 7:
The Revenue's primary contention was that the documents (challans/bills/invoices) issued by the sales depots were not specified under Rule 7 of the Cenvat Credit Rules. The appellants argued that these documents, along with original excise invoices, should be acceptable. The Tribunal noted that Rule 7 prescribes specific documents for availing credit, and the documents provided by the appellants did not meet these criteria.

3. Verification of Duty-Paid Character of Returned Goods:
The Revenue argued that the goods returned were not in the same packing or quantity as originally cleared, making it difficult to verify their duty-paid character. The Tribunal found that the documents failed to establish the duty-paid character, as the goods' identity could not be verified with the submitted documents. The lower authorities observed discrepancies in the packing and batch numbers, leading to the denial of credit.

4. Computation Error in the Show Cause Notice:
The appellants pointed out a computation error in the show cause notice dated 25.4.2003, where credit of Rs. 85,687/- was denied for cancelled invoices, not returned goods. This issue was not further elaborated upon in the judgment, indicating that it did not significantly impact the final decision.

5. Applicability of Rule 16 of the Central Excise Rules:
Rule 16 allows Cenvat credit for duty-paid goods returned to the factory. The Tribunal found that the appellants' documents did not sufficiently establish the duty-paid character of the returned goods, leading to the denial of credit. However, a separate judgment by another judge highlighted that the lower authorities extended the scope of the proceedings beyond the show cause notice by introducing new allegations during adjudication. The judge argued that Rule 16 is a beneficial provision and should allow credit if the goods are returned with proper documentation, even if not in the original packing.

Separate Judgments:
The judgment included separate opinions from two judges. One judge upheld the denial of credit, citing verification issues and non-compliance with Rule 7. The other judge disagreed, stating that the proceedings exceeded the scope of the show cause notice and emphasizing the beneficial nature of Rule 16. The difference in opinion was resolved in favor of the assessee, allowing the appeal with consequential relief.

Final Order:
In view of the majority order, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.

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