2016 (10) TMI 679 - AT - Central Excise

Returned goods cleared as scrap - Applicability of Rule 16 of CER, 2002 - CENVAT credit - similar issue for the same assessee for another unit 2016 (10) TMI 71 - CESTAT AHMEDABAD stand decided - Held that - the decision in the case apply where it was 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(f) of Central Excise Act, 1944. Therefore, on merit, the Appellant has no case. Period of limitation - Held that - all the facts are disclosed to the Department. therefore, no merit in the impugned order on the aspect of limitation. The demand for extended period of limitation is not sustainable and hence set aside. However, the matter needs to remanded to ascertain the duty involved for the normal period of limitation. Accordingly, the matter is remanded to the adjudicating authority to re-determine the demand amount for the normal period of limitation - Appeal disposed off - decided partly in favor of appellant.

Summary

Issues involved:
Appeal against OIA passed by Commissioner, Central Excise; Applicability of Rule 16 of CER, 2002; Limitation period for demand calculation.

Analysis:
The appeal in question was filed against the OIA passed by the Commissioner, Central Excise, Vadodara. The appellant argued that a similar issue was decided in favor of the revenue in a previous tribunal order but in their favor on limitation. The show cause notice was issued for a period where a major portion of the demand was barred by limitation. The Revenue reiterated the findings of the Commissioner (Appeals). The Tribunal observed that the process of converting defective goods into scrap may not constitute manufacture under Rule 16 of Central Excise Rules 2002. The rule allows for credit of duty paid on goods brought to the factory for certain processes. If the process does not amount to manufacture, the credit needs to be reversed. However, if it results in manufacture, duty must be paid. The Tribunal found that the appellant had maintained records and disclosed all relevant facts to the department, citing Supreme Court judgments on suppression of facts. The Tribunal set aside the order on limitation, remanding the matter to determine the demand for the normal period. The appeal was partly allowed.

In summary, the judgment addressed the applicability of Rule 16 of CER, 2002 regarding the conversion of defective goods into scrap and the reversal of credit if no manufacture occurs. It also analyzed the issue of limitation for demand calculation, emphasizing the importance of disclosing all relevant facts to the department to avoid allegations of suppression. The Tribunal set aside the order on limitation and remanded the matter for re-determination of the demand amount for the normal period, partially allowing the appeal.