2016 (8) TMI 541 - AT - Central Excise

Cenvat credit manufacture of dry cell batteries defective batteries in course of manufacture no duty paid reversal of cenvat credit in relation to defective dry cell batteries cbec instruction stating CENVAT credit admissible in respect of the amount of inputs contained in any of the waste, refuse or bye product - Held that - Even today CBEC instruction stand that CENVAT credit is admissible in respect of input contained in any of the waste, refuse or by product SCN unsustainable O-I-A and O-I-O set aside appeal allowed decided in favor of appellant.

Summary

Issues:
- Admissibility of CENVAT credit on inputs used in the manufacture of defective goods
- Interpretation of CBEC circular and rules regarding CENVAT credit

Analysis:

Issue 1: Admissibility of CENVAT credit on inputs used in the manufacture of defective goods
The case involved appeals filed by a company manufacturing dry cell batteries, challenging the recovery of CENVAT credit on defective batteries. The revenue contended that CENVAT credit on inputs used in the manufacture of defective batteries, on which no duty was paid, was not admissible. The original authority upheld the demand for recovery of CENVAT credit and imposed penalties. The Commissioner (Appeals) also affirmed the original order. The appellant argued that there were no provisions in the CENVAT credit Rules, 2004 to reverse credit on inputs used in the manufacture of defective goods. They cited past judgments and Rule 57D of the Central Excise Rules, 1944 to support their contention that credit on inputs going into waste is admissible. The Tribunal noted that CENVAT credit is admissible for inputs used in waste or by-products, and ruled in favor of the appellant, setting aside the orders-in-appeal and orders-in-original.

Issue 2: Interpretation of CBEC circular and rules regarding CENVAT credit
The appellant also argued that the CBEC circular and manual clarified the admissibility of CENVAT credit on inputs used in waste or by-products. The appellant contended that the orders-in-original and orders-in-appeal were flawed for not following the CBEC instructions. The Tribunal acknowledged the CBEC instruction stating that credit is admissible for inputs contained in waste or by-products. The Tribunal held that the show cause notices in both appeals were unsustainable based on the current CBEC instruction. Consequently, the Tribunal set aside both orders-in-appeal and orders-in-original, allowing the appeals with consequential relief.