2016 (9) TMI 623 - AT - Central Excise

Cenvat credit - playing cards supplied as free gift alongwith final product - playing cards purchased on payment of duty - Held that - the playing cards even though it does not participate directly in the manufacture of final product i.e. spray guns but undisputedly the same is purchased by the appellant and expenditure of the same stands absorbed in the cost of the final product which ultimately suffered the duty as a whole, therefore, the playing cards which is supplied along with final product should be eligible for input credit. The definition of input also clearly suggest that the input need not to be used directly in the manufacture and also not required to be contained in the final product but if it is used even in relation to the final product credit should be allowed. In the present case the playing cards indeed supplied along with final product it fulfilled the criteria of inputs, therefore credit cannot be denied of the duty paid on playing cards followed by the judgment of Hon ble Gujarat High Court in the case of Commr. of C. Ex. Cus. & S.T. Daman Vs. Prime Health Care Products 2010 (10) TMI 881 - GUJARAT HIGH COURT . - Decided in favour of appellant

Summary

Issues:
Admissibility of Cenvat credit for playing cards supplied as free gifts along with final product under the Central Excise Tariff Act, 1985.

Analysis:
The appeal challenged the Order-in-Appeal upholding the denial of Cenvat credit for playing cards supplied with spray guns. The appellant contended that since playing cards were purchased on payment of duty and their cost was included in the final product, Cenvat credit should be allowed. The appellant argued that playing cards, though not directly used in manufacturing, were dispatched with the final product, making them eligible as per the Cenvat Credit Rules, 2004. The appellant cited precedents where Cenvat credit was allowed for different products supplied along with the final product.

On the contrary, the Revenue argued that playing cards were neither used in manufacturing spray guns nor accessory to them, thus not qualifying as input for the final product. The Revenue relied on judgments to support their stance. The Tribunal considered the Modvat/Cenvat scheme to prevent tax cascading and noted that any input contributing to the final product, directly or indirectly, should have duty set off. Despite playing cards not directly participating in manufacturing, their cost was absorbed in the final product's cost, subject to duty. The Tribunal interpreted the definition of input broadly, allowing credit even if the input was not directly used or contained in the final product, as long as it was used in relation to the final product.

The Tribunal referenced previous judgments where items supplied for sales promotion were considered inputs, and Cenvat credit was allowed. Notably, the Tribunal highlighted a High Court judgment allowing Cenvat credit for a similar scenario. The Tribunal distinguished the judgments cited by the Revenue, noting the precedence of the High Court judgment over Tribunal decisions. Consequently, the Tribunal ruled in favor of the appellant, allowing Cenvat credit for playing cards supplied with spray guns, setting aside the impugned order and allowing the appeal.