2016 (12) TMI 31 - AT - Central Excise

Manufacture - the appellant is purchasing semi finished Auto Parts on payment of Excise duty and availing the CENVAT credit. The appellant, on such bought Auto Parts, carrying out certain processes including ancillary and incidental processes such as sizing on fixture, powder coating, inspection, fine boring, deburring, gauging, thickness measurement, dimension inspection, application of rust preventive oil, champering, tapping, welding, drilling, notching, thread cleaning depending on the type of the product, after carrying out aforesaid process they are clearing the same to the manufacturer on payment of Excise duty - whether the denial of CENVAT credit on the ground that the appellant is not carrying out any manufacturing activity, is justified? - Rule 16 of Central Excise Rules. Held that - From the plain reading of the Rule 16 it can be seen that if the assessee receive duty paid goods in his factory and carries out the various processes they can avail the CENVAT credit on said duty paid goods. The condition is that assessee is required to pay duty on reissue of bought out goods equivalent to the CENVAT credit availed, if the process does not amount to manufacture and if the process is amount to manufacture then the duty as per Section 4 is required to be paid i.e. on the transaction value. In the present case it is the contention of the Revenue that the appellant is not carrying out any manufacturing activity. Therefore the appellant is required to pay the duty equivalent to the CENVAT amount. However, the fact remains that the appellant has discharged the duty on the transaction value of on the processed goods, which is more than credit availed. Therefore in such fact the appellant is entitled for credit under the provision of Rule 16. We also take a note that the appellant has paid excise duty on the process component more than the amount of CENVAT credit of brought out goods. Therefore under these circumstances no demands exist, As per the above discussion, we are of the considered view that the appellant has rightly availed the CENVAT credit in respect of semi finished bought out components. CENVAT credit allowed - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
- Denial of CENVAT credit on semi-finished Auto Parts
- Interpretation of Rule 16 of Central Excise Rules, 2002

Denial of CENVAT credit on semi-finished Auto Parts:
The appellant purchased semi-finished Auto Parts, carried out various processes, and then cleared the final product to the manufacturer on payment of Excise duty. The adjudicating authority denied CENVAT credit, stating that the appellant did not engage in manufacturing activities. The appellant argued that they correctly availed the credit as per Rule 16, even if no manufacturing activity was involved. The appellant contended that the duty paid on the finished product exceeded the CENVAT credit availed on the semi-finished goods, making the demand unsustainable. The appellant cited various judgments to support their case.

Interpretation of Rule 16 of Central Excise Rules, 2002:
The Tribunal analyzed Rule 16, which allows CENVAT credit on goods brought to the factory for re-making, refining, or any other reason. If the process does not amount to manufacture, the manufacturer must pay an amount equal to the credit taken. However, if the process amounts to manufacture, duty must be paid on the transaction value. The Tribunal noted that the appellant paid duty on the processed goods exceeding the credit availed on the semi-finished goods. Therefore, the Tribunal concluded that the appellant rightly availed the CENVAT credit under Rule 16. The impugned order denying the credit was set aside, and the appeal was allowed.

This judgment clarifies the entitlement to CENVAT credit on semi-finished goods under Rule 16 of the Central Excise Rules, emphasizing the requirement to pay duty based on the process undertaken. The Tribunal's decision highlights the importance of analyzing the specific facts and processes involved in determining the eligibility for CENVAT credit, even in cases where manufacturing activities are not clearly established.