2014 (7) TMI 613 - AT - Central Excise

Duty demand on returned goods - goods scrapped after return as rejected goods - Rule 16 of Central Excise Rules 2002 - revenue contended that since the goods were scrapped totally the CENVAT credit could not have been availed - Held that - duty cannot be demanded for the second time on the same goods without showing that they have not suffered duty. In this case there is no denial by both the lower authorities that there is no finding that the rejected goods when they were cleared did not suffer any duty and if the duty is demanded again, it would amount to demand of duty twice on the same goods which in my opinion is not proper. No investigation or verification was carried out by the lower authorities and the show-cause notice simply stated that rejected goods were scrapped which shows that officers did not even verify the records maintained and whether any records were maintained at all and if records were maintained what they said. Further, assessee had maintained records and had cleared the rejected goods after accounting them in the RG-1. Such being the case, it is difficult to take a view that there was suppression or mis-declaration. Therefore, on this ground also appellant has a case - Decided in favour of assessee.

Summary

Issues Involved:
Whether the appellant is liable to pay central excise duty with interest for rejected goods, compliance with Rule 16 of Central Excise Rules 2002, maintaining separate records for rejected goods, imposition of penalties, and the issue of limitation.

Analysis:

Issue 1: Liability to Pay Central Excise Duty for Rejected Goods
The case revolved around the liability of the appellant to pay central excise duty for goods rejected by customers. The show-cause notice was issued based on the grounds that the rejected goods were not properly accounted for by the appellant, leading to the demand for payment of duty and penalties. The appellant argued that they followed Rule 16 of Central Excise Rules 2002 by entering the rejected goods in the RG-1 register. The lower authorities, however, contended that the goods should have been accounted for separately, and the nature of processing should have been indicated, which the appellant failed to do. The Tribunal observed that Rule 16 does not specify that rejected goods must be accounted for separately and upheld the appellant's contention that entering the particulars in the records suffices. The Tribunal also noted that duty cannot be demanded twice on the same goods without evidence that duty was not paid earlier.

Issue 2: Compliance with Rule 16 of Central Excise Rules 2002
The disagreement between the parties centered on the interpretation of Rule 16 regarding the maintenance of records for rejected goods. The appellant maintained that entering the rejected goods in the RG-1 register was in compliance with Rule 16, while the revenue authorities argued that separate records should have been maintained. The Tribunal held that the Rule does not specify the type of records required, and the appellant's method of accounting for the rejected goods was deemed appropriate, especially considering the broad interpretation of "for any other reason" in the Rule.

Issue 3: Imposition of Penalties
The lower authorities imposed penalties on the appellant for not following the provisions of Rule 16 and for failing to indicate the nature of processing undergone by the rejected goods. However, the Tribunal found that the appellant had maintained records and cleared the rejected goods after accounting for them in the RG-1 register. As there was no evidence of suppression or mis-declaration, the Tribunal ruled in favor of the appellant, indicating that the penalties were unjustified.

Issue 4: Limitation
The appellant raised the issue of limitation, arguing that the show-cause notice was issued beyond the normal period of limitation. The Tribunal considered the appellant's compliance with record-keeping and the absence of suppression or mis-declaration, concluding that the case did not warrant penalties or additional duty payment. Therefore, the Tribunal allowed the appeal, highlighting that the impugned order could not be sustained due to the lack of justification for the demand and penalties.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing compliance with Rule 16, the absence of justification for penalties, and the lack of evidence for demanding duty twice on the same goods.