2011 (12) TMI 441 - AT - Central Excise

Duty demand - Availment of CENVAT Credit - appellants have recovered the cost of cylinders (capital goods) and poly films and paper (inputs) from their suppliers - Held that - appellants have put the impugned cylinders and poly films and paper to use in the process of manufacture and the scrap generated in respect of defective cylinders and poly films and paper have been cleared as waste paying appropriate duty, the condition for availing Cenvat credit has been satisfied and hence there appears to be no warrant in law to reverse the credit in this regard. It is also not the case that the appellants have intentionally used the defective cylinders, poly films and paper; they have regular manufacture and only a small portion of the impugned goods were defective resulting in waste material. The small duty demand for a period of four years itself shows that the incidence of use of such defective material is only incidental. As such, the duty demand including demand of interest and penalty in respect of the 22 debit notes is also set aside - Decided in favour of assessee.

Summary

Issues:
1. Dispute related to 26 debit notes and demand made by the department.
2. Eligibility of capital goods/input duty credit for recovered costs.
3. Explanation provided by the appellants regarding the use of cylinders and poly films in manufacturing process.
4. Condition for availing Cenvat credit and reversal of credit.
5. Intentional use of defective material and duty demand.
6. Appeal decision and setting aside of demands.

Analysis:
1. The judgment addresses a dispute concerning 26 debit notes, focusing on a demand made by the department against the appellants. Out of these, 22 cases involve the charge that the appellants recovered costs of cylinders and input materials from suppliers, potentially affecting their eligibility for capital goods/input duty credit.

2. Regarding the 22 debit notes, the appellants explained that both cylinders and poly films were utilized in the manufacturing process, with defects discovered during manufacturing. The waste material generated was cleared by paying applicable duty, and the appellants clarified that only the cost of the items, not the duty portion, was recovered from suppliers.

3. The tribunal found that the appellants satisfied the condition for availing Cenvat credit as the impugned items were used in the manufacturing process, and waste material was appropriately cleared with duty payment. The incidental nature of using defective materials was highlighted, with the duty demand over four years indicating the incidental use of such materials.

4. Consequently, the tribunal set aside the demand for the 22 debit notes, including interest and penalty, as the conditions for availing credit were met, and there was no intentional use of defective materials impacting the manufacturing process significantly.

5. The judgment concludes by allowing the appeal based on the explanations provided by the appellants and the satisfaction of conditions for availing credit, ultimately setting aside the demands associated with the 22 debit notes.

This detailed analysis of the judgment highlights the key issues addressed, the explanations provided by the parties involved, and the tribunal's decision based on the legal principles governing the eligibility for duty credit and the use of materials in the manufacturing process.