2016 (10) TMI 71 - AT - Central Excise

Recovery of Cenvat credit - returned goods cleared as scrap - Rule 16 - Held that - the Appellant had received in their factory the defective duty paid goods for remaking, refining, reconditioning etc. It is not in dispute that the certain quantity of such defective goods were remade/reconditioned and cleared on payment of appropriate duty. However, the major portion of the returned goods was scrapped and cleared from the factory after payment of duty on the transaction value of the scrap. It is the contention of the Department that the conversion of printed/unprinted corrugated boxes into scrap cannot be considered as a process of manufacture. Hence, the credit availed under Rule 16(1) is required to be reversed. I do not find any discrepancy in the observation of the learned Commissioner (Appeals) in this regard, in as much as the provisions of the said Rules are specific. In the present case, it cannot be said that the process by which the defective goods are converted into scrap, should be considered as manufacture within the definition of manufacture as laid down under Section 2(l) of Central Excise Act, 1944. Therefore, on merit, the Appellant has no case. Period of limitation - Held that - appellant has meticulously maintained the Form V registers and filed D-3 intimation with the Department about receipt of the defective materials in their factory. Also, in the said register, it is maintained invoice-wise and clearance of scrap is also reflected. Also, in the monthly returns, the Appellant had indicated that the clearances of defective materials on payment of duty by making a remark as material resupplied against D-3 . Therefore, in my opinion, all the facts are disclosed to the Department. therefore, I do not find merit in the impugned order on the aspect of limitation. - Decided in favour of appellant

Summary

Issues:
- Whether the demand notice issued for recovery of CENVAT Credit on returned goods cleared as scrap without reversing the credit is valid.
- Whether the conversion of rejected material into scrap constitutes a process of manufacture under Rule 16 of Central Excise Rules 2002.
- Whether the demand is barred by limitation due to suppression of facts.

Analysis:
1. Validity of Demand Notice: The appeal was filed against the demand notice issued for recovery of CENVAT Credit on returned goods cleared as scrap without reversing the credit. The Appellant argued that they meticulously maintained records and filed necessary intimation with the Department about the receipt and clearance of defective materials. The Appellant contended that no suppression of facts occurred, citing a recent Supreme Court decision. The Tribunal found that all relevant facts were disclosed to the Department, and the demand notice was not valid due to lack of deliberate suppression to escape duty payment.

2. Process of Manufacture: The dispute centered on whether converting rejected material into scrap constitutes a process of manufacture under Rule 16 of Central Excise Rules 2002. The Revenue argued that the Appellant should have reversed the credit availed under Rule 16(1) as the conversion into scrap was not a manufacturing process. The Tribunal agreed with the Revenue, stating that the conversion of printed/unprinted corrugated boxes into scrap did not amount to manufacture as defined under the Central Excise Act. Therefore, the Appellant was required to reverse the credit availed under the rule.

3. Limitation and Suppression of Facts: The Appellant contended that the demand was barred by limitation as they had maintained meticulous records and disclosed all relevant information to the Department. The Tribunal noted that the Appellant had maintained Form V registers, filed D-3 intimation, and indicated clearances of defective materials in monthly returns. Citing a Supreme Court judgment, the Tribunal emphasized that mere omission to disclose correct information does not amount to suppression unless there is a deliberate attempt to evade duty payment. As all facts were known to both parties, the Tribunal held that there was no suppression of facts and set aside the impugned order on the aspect of limitation, allowing the appeal with consequential relief.