2016 (5) TMI 305 - HC - Central Excise

Cenvat Credit - Eligible input - Final products cleared along with the packing material - Held that - Tribunal allowed the appeal of the Revenue on the ground that if the packing material had not been used for the purpose of packing the finished products, the credit taken by the assessee for the duty paid on packing materials had to be reversed. But unfortunately it has not taken into account the definition of the word input appearing in Rule 2(g) of the CENVAT Credit Rules 2002. The object of granting CENVAT credit is to ensure a single incidence of tax of the final product. The very purpose of the value added tax system is only to ensure this and to avoid incidence of tax more than once. The Tribunal has found that there is a mention about the packing material in fine print in the invoices. But, merely because it was found in a small print, the Tribunal interfered with a finding of fact recorded by the Commissioner of Appeals. There is no dispute about the fact that the final products were cleared along with the packing material in this case. - The surprise inspection did not reveal that the packing materials were recalled and again made use of as sought to be contended by the respondent. An invention of this nature across the bar cannot improve the case of the Revenue. Therefore, the order of the Tribunal is set aside. - decided in favour of appellant

Summary

Issues:
1. Eligibility of manufacturer to take credit of duty paid on packing material.
2. Tribunal's failure to consider relevant factors in deciding the claim of credit on packing material.
3. Tribunal's failure to examine the relevance of packing material for marketability.
4. Tribunal's decision contrary to previous judgments and invoking extended period of limitation without finding of fraud.

Eligibility of manufacturer to take credit of duty paid on packing material:
The appellant, a manufacturer of plastic furniture and material handling crates, faced a demand for duty recovery due to sending packing material along with finished products without actually packing them. The Commissioner's order for duty recovery was based on this practice. However, the Commissioner (Appeals) allowed the appellant's appeal, leading to a second appeal by the Revenue before the Tribunal. The Tribunal reversed the Commissioner's decision, stating that if packing material was not used for packing finished products, the credit taken on duty paid for packing material should be reversed. The High Court noted the wide definition of 'input' under Rule 2(g) of the CENVAT Credit Rules 2002, encompassing goods used directly or indirectly in manufacturing final products, including packing material. The Court emphasized that the purpose of CENVAT credit is to ensure a single tax incidence on the final product, which was not violated in this case as the final products were cleared along with the packing material.

Tribunal's failure to consider relevant factors:
The Tribunal's decision was criticized for not considering the definition of 'input' under the CENVAT Credit Rules, which includes packing material. The Court highlighted that the Tribunal should have taken into account all relevant factors, especially the fact that the final products were cleared along with the packing material. The Tribunal's emphasis on the presence of packing material details in small print on invoices was deemed insufficient to override the Commissioner of Appeals' factual findings. The Court found no evidence to support the Revenue's claim that the packing material was recalled and reused, dismissing such arguments as unsubstantiated.

Tribunal's failure to examine the relevance of packing material for marketability:
The High Court pointed out that the Tribunal failed to address the relevance of packing material for marketability, which is a crucial factor in determining the eligibility for credit on packing material. The Court referred to previous judgments emphasizing the importance of considering all relevant factors in such cases, highlighting the Tribunal's oversight in this regard.

Tribunal's decision contrary to previous judgments and invoking extended period of limitation without finding of fraud:
The Tribunal's decision was found to be in conflict with previous judgments and lacking a finding of fraud, collusion, or wilful misstatement to justify invoking the extended period of limitation. The High Court set aside the Tribunal's order, ruling in favor of the assessee and closing the matter without costs.