2014 (12) TMI 119 - AT - Central Excise

Availment of CENVAT Credit - Returned goods - Rule 16 of the Central Excise Rules - Revenue was of the view that is inasmuch as after entering the goods in their Cenvat Account, the assessee has simplicitor shown the issuance of the said inputs for further manufacture, without maintaining any records about the same - Commissioner held that duty demand for Cenvat credit on returned goods is not sustainable under law and deserves to be set aside - Held that - no reasons to disagree with the finding of the appellant authority. As rightly observed by him, Revenue on one hand, is contending that no records were being maintained by the assessee after receipt of the returned goods, so as to show the further process taken by them and on the other hand, they are contending that 80% of the receipt material was cleared as scrap. The said submission of the Revenue is based upon the statement of the employee, without verifying as to whether the waste and scrap so cleared by the appellant emerged during the course of remanufacture or the not. The provision of Rule 16 does not require maintenance of any records. The returned goods have to be treated as inputs and the assessee having shown the issuance of the said inputs from their RG-I; had deemed to have manufactured their final product. In the absence of any documentary evidence in support of revenue s stand, I find no justification for setting aside the impugned order of Commissioner (Appeals). - Decided against Revenue.

Issues:
1. Availment of Cenvat Credit without maintaining records of further process on returned goods.
2. Demand of duty and penalty under Rule 16 of Central Excise Rules 2002.
3. Treatment of returned goods as inputs and clearance as scrap without separate records.
4. Revenue's contention on usability of returned goods and clearance as scrap.
5. Discrepancy between Revenue's arguments on lack of records and clearance of 80% material as scrap.

Analysis:

Issue 1: Availment of Cenvat Credit without maintaining records of further process on returned goods
The case involved a dispute where the respondents, engaged in manufacturing Aluminium Foils, were availing Cenvat Credit without maintaining records of further processing on goods received back after clearance. The Revenue argued that the lack of documentation on the subsequent process warranted a demand of duty under Rule 16 of the Central Excise Rules.

Issue 2: Demand of duty and penalty under Rule 16 of Central Excise Rules 2002
The Revenue contended that the assessee had not maintained records of the further process on returned goods after availing Cenvat Credit. Consequently, the original adjudicating authority imposed a duty demand of &8377;19,60,153 along with a penalty. The Commissioner (Appeals) upheld the appeal, emphasizing that the processes undertaken on the returned goods constituted manufacturing activities, thus rejecting the duty demand.

Issue 3: Treatment of returned goods as inputs and clearance as scrap without separate records
The Commissioner (Appeals) observed that the returned goods, due to defects or non-compliance with purchase specifications, underwent various manufacturing processes like re-annealing, slitting, and lamination. These processes were considered essential to make the goods marketable, qualifying as manufacturing activities under the law. The absence of separate records for returned goods did not invalidate the Cenvat Credit availed by the assessee.

Issue 4: Revenue's contention on usability of returned goods and clearance as scrap
The Revenue argued that only 20% of the returned goods were reusable, with the remaining 80% sold as scrap. However, the assessee maintained that there was no requirement for separate records for returned goods, treating them as inputs. The duty paid on scrap was available as Cenvat credit to the buyer, ensuring revenue neutrality.

Issue 5: Discrepancy between Revenue's arguments on lack of records and clearance of 80% material as scrap
The Tribunal rejected the Revenue's appeal, noting the inconsistency in the Revenue's stance regarding the lack of records for returned goods and the clearance of 80% material as scrap. Without concrete evidence supporting the Revenue's claims, the Tribunal upheld the Commissioner (Appeals) order, emphasizing that the returned goods were to be treated as inputs, and the duty demand was not sustainable under the law.

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