2011 (9) TMI 862 - AT - Central Excise

Availment of CENVAT Credit - benefit of credit in terms of Rule 16 of the Central Excise Rules 2002 - Receipt of so-called non-marketable/non-saleable cigarettes returned by their own sales offices only - Held that - In the face of the clear language of the above rule the finding of the Commissioner that very first condition for eligibility of credit on returned goods is that the goods must be usable and used as inputs in the manufacture of finished goods is prima facie not tenable. Further in the present case a large percentage of tobacco (obtained by ripping open returned cigarettes) is used along with fresh tobacco in the manufacture of fresh cigarettes. Thus prima facie the assessees are entitled to credit in terms of Rule 16 and the duty demand is prima facie not sustainable in the light of Rule 16 and in the light of the decision of the Tribunal in Supreme Industries Limited v. CCE Chandigarh reported in 2005 (7) TMI 164 - CESTAT MUMBAI and Hindalco Industries Limited v. CCE Belapur reported in 2007 (6) TMI 35 - CESTAT MUMBAI - Stay granted.

Summary

Issues:
- Entitlement to Cenvat credit on returned goods for reprocessing
- Interpretation of Rule 16 of the Central Excise Rules, 2002
- Prima facie tenability of duty demand

Entitlement to Cenvat credit on returned goods for reprocessing:
The assessees, engaged in manufacturing cut tobacco and cigarettes, availed Cenvat credit on inputs, capital goods, and input services under the Cenvat Credit Rules, 2004. They received non-marketable/non-saleable cigarettes back for reprocessing due to various reasons like bad smell and dried-up tobacco. The department alleged that the assessees were receiving these cigarettes from their own sales offices to claim credit under Rule 16 of the Central Excise Rules, 2002. Show cause notices were issued for duty recovery, interest, and penalties. The Commissioner confirmed the demands and penalties. However, the Tribunal found that the assessees, by using a large percentage of tobacco from returned cigarettes in manufacturing fresh ones, were entitled to credit under Rule 16. Citing precedents, the Tribunal held that the duty demand was not sustainable.

Interpretation of Rule 16 of the Central Excise Rules, 2002:
Rule 16(1) of the Central Excise Rules, 2002 allows Cenvat credit on goods brought back for reprocessing. The Commissioner's interpretation that the goods must be usable and used as inputs for finished goods was deemed prima facie untenable by the Tribunal. The Tribunal noted that a significant portion of tobacco from returned cigarettes was utilized in manufacturing fresh ones. Therefore, the assessees were considered eligible for credit under Rule 16, as per the Tribunal's analysis and relevant case law.

Prima facie tenability of duty demand:
In light of the clear language of Rule 16 and the Tribunal's assessment, the duty demand raised against the assessees was deemed prima facie unsustainable. The Tribunal referenced specific cases to support its decision, emphasizing that the assessees' utilization of tobacco from returned cigarettes in manufacturing fresh ones aligned with the provisions of Rule 16. Consequently, the Tribunal waived the deposit of duty, interest, and penalty, staying the recovery pending appeals.