2012 (7) TMI 816 - AT - Central Excise

Availment of CENVAT Credit - whether appellant can be compelled to avail the credit of duty paid on rejected and returned goods - Held that - In any case, such credit is required to be taken on the basis of duty paying documents and other relevant documents. In the present case, when the goods are returned by the consignee, the duty paying documents are not available. As such, assessee could not have taken the credit. And in fact, the same does not stand taken by him. He cannot be compelled to take the credit in respect of such goods, even when duty paying documents are not available. The entire stand of the Revenue reflects upon the high handedness attitude - Decided in favour of assessee.

Summary

Issues:
1. Applicability of area based exemption Notification No. 56/2002-C.E.
2. Availment of Cenvat credit on returned goods.
3. Interpretation of Rule 16 of the Central Excise Rules, 2002.

Analysis:

1. The judgment revolves around the applicability of area based exemption Notification No. 56/2002-C.E. to a manufacturing unit engaged in the production of menthol and De-mentholised oil. The unit was required to discharge duty liability by utilizing Cenvat credit and paying the balance amount in cash, with the provision for refund of the cash duty paid. The issue was whether the appellant complied with the conditions of the notification.

2. The appellant cleared goods to a consignee, and upon return of the goods, they were entitled to avail Cenvat credit of the duty paid. However, due to the unavailability of duty paying documents for the returned goods, the appellant did not claim the credit. The lower authorities contended that the appellant should have utilized the available credit for duty payment on subsequent clearances. This led to a dispute regarding the appellant's entitlement to claim a refund of the duty paid in cash.

3. The crux of the matter was the interpretation of Rule 16 of the Central Excise Rules, 2002. The Revenue argued that the appellant should have availed the credit as per Rule 16 when goods were returned, and failing to do so resulted in the payment of duty out of the Personal Ledger Account (PLA). However, the tribunal disagreed with the Revenue's interpretation, emphasizing that Rule 16 provides an option for the assessee to avail credit, not a mandate. The tribunal highlighted that the rule uses the term "entitle," indicating the assessee's right to take credit, not an obligation.

4. The tribunal further clarified that the availability of duty paying documents is crucial for claiming credit under Rule 16. Since the appellant did not possess such documents for the returned goods, they could not be compelled to take the credit. The tribunal criticized the Revenue's stance as being unreasonable and upheld the appellant's right to not avail the credit in the absence of necessary documentation.

5. Consequently, the tribunal set aside the impugned order, ruling in favor of the appellant and granting them consequential relief. The judgment emphasized the importance of adhering to legal provisions while considering the entitlement of Cenvat credit and highlighted the need for a balanced approach in interpreting and applying excise rules.