2016 (11) TMI 49 - AT - Central Excise

Availing credit on returned goods - receipt of credit notes instead of Invoices - Rule 16 of Central Excise Rules,2002 - Held that - there is no dispute about the receipt of the returned defective goods from the depots as well as their customers, listed out in the Form V Register enclosed as Annexure B to the appeal paper book - Since the entire quantity against the clearance of excise invoices were not received back but part quantity which were defective only received, the credit notes were issued to regularize the account - Appeal allowed.

Summary

Issues:
1. Availment of CENVAT Credit on returned goods against credit note.
2. Validity of credit notes issued to regularize the account.
3. Interpretation of Rule 16 of Central Excise Rules, 2002.

Analysis:

Issue 1: The appeal was filed against the order passed by the Commissioner (Appeals) alleging irregular availment of CENVAT Credit on returned goods. The Appellant had cleared finished goods to customers and depots, with a portion being returned as defective. The Appellant availed CENVAT Credit proportionately to the quantity returned. The Department argued that the credit was irregular as it was taken against credit notes. The Appellant contended that credit was availed on the original invoices against which the goods were initially cleared, supported by documentation. The Tribunal found that the Appellant maintained records of returned goods and issued credit notes to regularize the account, making them eligible for CENVAT Credit as per Rule 16 of Central Excise Rules, 2002. The impugned order was set aside, and the appeal was allowed.

Issue 2: The Department objected to the validity of credit notes issued by the Appellant to regularize the account of returned defective goods. The Tribunal noted that the Appellant maintained a Form V register reflecting the relevant invoices against which the goods were initially cleared and later received as defective. As only part of the quantity was returned, credit notes were issued to correct the account. The Tribunal held that the issuance of credit notes to rectify the account was valid, as the goods were returned, rectified, and cleared on payment of duty. Therefore, the credit notes were essential for maintaining accurate records and were upheld as valid documents.

Issue 3: The Tribunal interpreted Rule 16 of Central Excise Rules, 2002 in the context of the case. It found that the Appellant was eligible for CENVAT Credit as they had followed the necessary procedures for returned goods, including rectification and payment of duty on cleared goods. The Tribunal emphasized that the Appellant's meticulous maintenance of records, including the Form V register, demonstrated compliance with the rules. Consequently, the Tribunal set aside the impugned order, allowing the appeal and granting any consequential relief as per the law.

In conclusion, the Tribunal's judgment addressed the issues of irregular CENVAT Credit availment, validity of credit notes, and interpretation of Rule 16, ultimately ruling in favor of the Appellant based on their compliance with the Central Excise Rules and proper documentation of returned goods.