2017 (3) TMI 862 - AT - Central Excise

Returned goods - Rule 16 - Reversal of CENVAT credit or payment of appropriate duty on goods processed - whether the appellant-assessee is required to discharge/reverse the entire CENVAT credit on the equipment which were received back for reconditioning/repair or otherwise? - The laboratory equipment from where parts are removed are discarded as scrap on payment of duty - Held that - the issue is no more res integra - the Tribunal in the case of Maruti Udyog Ltd v. Commissioner of Central Excise, New Delhi - III 2002 (8) TMI 155 - CEGAT, COURT NO. II, NEW DELHI on identical issue, has held that manufacturing means put into the process of utilization of salvaged parts. When the vehicle is brought back to the factory for the intended purposes as stipulated under Rule 16(1) the credit of duty paid on such vehicle is available to the appellant. That such vehicles undergo a process of manufacture and become part of process of production of new vehicle is settled and undisputed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant-assessee is required to reverse the entire CENVAT credit on equipment received back for reconditioning/repair.

Analysis:
The appellant, a manufacturer of laboratory equipment, faced the issue of whether to discharge/reverse the CENVAT credit on goods received back for reconditioning/repair. The appellant availed CENVAT credit under Rule 16 of the Central Excise Rules, 2002, for duty paid on equipment received back. The lower authority held that the appellant's activities did not amount to manufacturing, thus requiring the reversal of CENVAT credit. However, referencing previous judgments, the Tribunal clarified that manufacturing includes utilizing salvaged parts, and the process undertaken by the appellant amounted to manufacturing. The Tribunal emphasized that the duty paid vehicle brought back for re-making or salvaging falls under Rule 16(1), allowing the appellant to avail CENVAT credit and utilize it according to the rules. The Tribunal rejected the Commissioner's misapplication of Rule 16(3) to restrict the available credit, stating that dismantling and salvaging usable parts is part of the manufacturing process, entitling the appellant to full credit without apportionment. The Tribunal concluded that the appellant's situation fell under Rule 16(1) and (2), and denial of credit, either partly or fully, was unjustified, setting aside the impugned order and allowing the appeal.

This case highlights the interpretation of Rule 16 in availing CENVAT credit on goods received back for reconditioning/repair. The Tribunal's analysis reaffirmed that salvaging parts and utilizing them in manufacturing processes constitute manufacturing, entitling the appellant to avail full credit without apportionment. The judgment clarified the scope of Rule 16(1) and (2) in allowing credit for salvaged parts and emphasized that denial of credit without legal basis is unsustainable. The binding precedent set by previous Division Bench judgments supported the appellant's position, ultimately allowing the appeal and providing consequential relief.