2014 (9) TMI 866 - AT - Central Excise

CENVAT Credit on returned / damaged goods - Rule 16 of central excise rules, 2002 - Whether process of re-conditioning and repacking of yarn amounted to manufacture or not - Held that - From the perusal of nature of process undertaken, it is observed that in yarn industry, it is not possible to undertake re-winding or remanufacturing of yarn. It is also noted that the respondents have not been able to show that yarn which was received back after repacking could be re-sold without disturbing the original quality and keeping the nature of the yarn intact. Further no evidence, documentary or otherwise has been brought on record. As the benefit has been availed by the assessee, thus burden was upon them to discharge the same. Revenue s allegation that no entries relating to return of goods in ER-1 return have indicated that damaged goods have really come back strengthen the case of Revenue as above conclusion is based on documentary evidence. I also agree with Revenue that Commissioner (Appeals) s observation that goods have passed the test of manufacture once they are returned under Rule 16 of Central Excise Rules, 2002 has no force. There is considerable strength in departmental contention for invocation of larger period. Though respondents have cleared that receipt and clearance was shown in return. Actually there is no clear description in return indicating receipt of yarn repacking/reconditioning. Similarly there is no mention of reconditioned yarn being cleared. All these factors indicate clandestine nature of activities for which invokation of extended period of limitation is justified. - re-winding or reconditioning of the yarn is impossibility and no credit on the return goods is admissible as returned goods could not be re-manufactured and documentary evidence is also against respondent - Decided in favour of Revenue.

Summary

Issues:
1. Whether the process of re-conditioning and repacking of yarn amounts to manufacture.
2. Whether the invocation of the extended period of limitation is justified.

Analysis:
1. The case involved an appeal by the Revenue against the dropping of a demand by the Commissioner (Appeals) regarding the payment of duty on cotton yarn received back for reconditioning and repacking. The Revenue contended that the process did not amount to manufacture as specified in Rule 16 of Central Excise Rules, 2002. The Commissioner (Appeals) had upheld the order vacating the demand, leading to the appeal before the Tribunal.

2. The Tribunal analyzed the nature of the process undertaken by the respondent, a manufacturer of yarn, for reconditioning and repacking of the returned goods. It was observed that the process did not fit within the definition of manufacture as specified in the rules. The Tribunal noted the lack of evidence showing that the reconditioned yarn could be resold without altering its original quality. The absence of documentary evidence supporting the reconditioning process strengthened the Revenue's case.

3. The Tribunal agreed with the Revenue that the entries in the ER-1 return did not clearly indicate the receipt and clearance of reconditioned yarn, suggesting a clandestine nature of activities. The lack of specific descriptions in the return regarding the reconditioned yarn being cleared supported the justification for invoking the extended period of limitation.

4. Ultimately, the Tribunal found merit in the Revenue's appeal, concluding that re-winding or reconditioning of the yarn was not feasible for re-manufacturing, and no credit on the returned goods was admissible. The lack of documentary evidence supporting the reconditioning process and the discrepancies in the ER-1 return led to the acceptance of the Revenue's appeal.

5. The judgment highlighted the importance of adhering to the definitions of manufacturing processes specified in the rules, the burden of proof on the assessee to justify claimed benefits, and the significance of maintaining accurate records to avoid allegations of clandestine activities. The decision emphasized the need for clear documentation and compliance with regulatory requirements in excise matters.