2017 (7) TMI 443 - AT - Central Excise

CENVAT credit - removal of defective/rejected/waste components of television receivers - Revenue was of the view that since credit had been availed on inputs the respondents ought to have reversed the credit under Rule 3 (4) of Cenvat Credit Rules, 2002 - scope of SCN - Held that - assesssee have properly accounted the removal in RG-I register and also in RT-12 returns. The Commissioner (Appeals) has appreciated the facts and found that the SCN has not alleged that the inputs were removed as such. This has necessitated the adjudicating authority to call for report whether the items entered the production line. Therefore, it is apparent that the department has not raised in the SCN the allegation that such goods were cleared as such - In Tata Cumin Ltd. Vs. CCE, JSR 2015 (9) TMI 1079 - CESTAT KOLKATA , it was held that when inputs become damaged during the course of assembling of finished goods, the same being converted to scrap and removed as scrap, the demand of duty/denial of credit is unjustified - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
- Availing of Cenvat credit on inputs and capital goods
- Removal of components/parts as defective/rejected/waste
- Duty demand and penalty imposition
- Appeal before Commissioner (Appeal) and subsequent orders

Analysis:

Availing of Cenvat credit on inputs and capital goods:
The case involved the respondents availing Cenvat credit on inputs and capital goods. The dispute arose when certain components/parts described as defective/rejected/waste were removed by the respondents under invoices. The issue focused on whether the respondents should have reversed the credit under Rule 3(4) of Cenvat Credit Rules, 2002.

Removal of components/parts as defective/rejected/waste:
The respondents contended that the removed components were waste PCB assemblies, rejected/defective components, broken picture tubes, and waste components of televisions. They explained that during the production process, some components become waste due to various reasons, and these waste components were duly accounted for in the RG-I Register and removed on payment of duty. The respondents argued that the removed components were not inputs as such but production waste, and therefore, they were not liable to reverse the credit.

Duty demand and penalty imposition:
The original authority confirmed a duty demand of ?1,06,101/- along with interest but dropped the penalty and a higher duty demand proposal. Both the department and the respondents appealed before the Commissioner (Appeal). The Commissioner (Appeal) dismissed the department's appeal and allowed the respondents' appeal, setting aside the duty demand. The department contended that the removed items were obsolete inputs cleared as scrap, and the respondents should reverse the credit as these items were not utilized in the final product manufacturing.

Appeal before Commissioner (Appeal) and subsequent orders:
The department argued that the Commissioner (Appeal) failed to consider that the removed items were rejects and scrap, which should have been recorded in the production register. On the other hand, the respondents maintained that the removed components were production waste, duly recorded, and cleared on payment of duty. The Tribunal found in favor of the respondents, emphasizing that the removed components were damaged during the production process and converted to scrap. Citing precedent, the Tribunal held that demanding duty or denying credit in such cases is unjustified. Consequently, the appeal filed by the department was dismissed for lacking merit.

In conclusion, the Tribunal upheld the decision of the Commissioner (Appeal) and dismissed the department's appeal, emphasizing that the removed components were production waste and not inputs as such, warranting no reversal of credit. The case highlighted the importance of proper documentation and accounting for production waste to avoid unnecessary duty demands and penalties.