2017 (7) TMI 479 - AT - Central Excise

CENVAT credit - inputs - short received inputs from job-worker - denial of credit on the ground that certain inputs were rejected/ spoiled by the job worker and certain inputs were not received back by the appellant from the job worker - Whether the cenvat credit of ₹ 6,00,613/- can be denied to the appellant on account of inputs rejected/spoiled at the end of job worker premises which have been received by the appellant? - Held that - as per Rule 4(3) of the CCR, 2004 if any inputs were used in manufacturing of final product is entitled to take cenvat credit. Admittedly, the inputs later on found rejects/spoiled were sent for manufacturing to the job worker and used in manufacturing process, therefore, as per cenvat credit Rules, 2004, the appellant is entitled to avail cenvat credit - credit allowed. Whether Cenvat credit of ₹ 67,16,069/- can be denied to the appellant inputs short received short on account waste/scrap generated at the end of job workers? - Held that - scrap generated at the end of the job worker is not manufactured for final product, therefore, the Rules 4(6) of the CCR, 2004 are not applicable to the facts of the case - said issue is covered by the circular B-4/7/2000-TRU dated 03.04.2000 and various decisions namely in the case of Mahindra Hinoday Industries Ltd. 2015 (1) TMI 26 - CESTAT MUMBAI , where it was held that the appellant is entitled for Cenvat credit on inputs which contained in waste and scrap generated at the end of job worker - the waste and scrap generated at the end of the job worker, who had cleared the said waste and scrap on payment of duty. The appellant cannot be denied cenvat credit, therefore, we hold that the cenvat credit on ₹ 67,16,069/- cannot be denied to the appellant. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the cenvat credit of ?6,00,613/- can be denied to the appellant on account of inputs rejected/spoiled at the job worker's premises which have been received back by the appellant.
2. Whether the cenvat credit of ?67,16,069/- can be denied to the appellant on inputs short received on account of waste/scrap generated at the job worker's end.

Issue No. 1: Cenvat Credit of ?6,00,613/- Denied on Inputs Rejected/Spoiled at the Job Worker’s Premises Received Back by the Appellant

The appellant contended that as per Rule 4(3) of the Cenvat Credit Rules, 2004, they are entitled to cenvat credit on inputs used in manufacturing, even if later found to be rejects/spoiled. The appellant relied on the decision of the Hon'ble Delhi High Court in Asahi India Safety Glass Limited, which emphasized that credit is to be allowed on inputs used in or in relation to the manufacture of final products, regardless of whether they become waste during the process.

The Tribunal agreed, holding that the appellant is entitled to avail cenvat credit of ?6,00,613/- on inputs rejected/spoiled and received back. The Tribunal cited the Asahi India Safety Glass Limited case, which stated that rejected or defective inputs used in the manufacturing process still qualify for cenvat credit.

However, a separate judgment by another member disagreed, stating that the appellant did not provide evidence that the rejected raw material was cleared on payment of duty. The member noted that the appellant failed to reverse the credit and did not provide proper documentation, such as TR-6 challan or debit particulars from the Cenvat credit account, to show payment of duty on the scrap. Consequently, the appellant was required to reverse the credit.

Issue No. 2: Cenvat Credit of ?67,16,069/- Denied on Inputs on Account of Generation of Waste/Scrap at the Job Worker’s End

The Tribunal found no allegation in the show cause notice regarding non-compliance with Rule 4(6) of the Cenvat Credit Rules, 2004. The CBEC Circular F.NO. B-4/7/2000-TRU dated 03.04.2000 clarified that cenvat credit is admissible on inputs contained in waste, refuse, or by-products generated during the manufacturing process.

The Tribunal cited various decisions, including Mahindra Hinoday Industries Ltd., which supported the view that cenvat credit is admissible for inputs contained in waste and scrap generated at the job worker's end. The Tribunal held that the appellant is entitled to cenvat credit on ?67,16,069/- for inputs used in waste and scrap generated at the job worker's end, as the waste and scrap were cleared on payment of duty.

Conclusion:

The Tribunal concluded that the appellant correctly took the cenvat credit, setting aside the impugned order and allowing the appeal with consequential relief. However, due to differing opinions on the first issue, the matter was referred to the Hon'ble President for nominating a third member to resolve the issue.

Separate Judgment:

The separate judgment upheld the demand of ?6,00,613/-, interest, and penalty, while setting aside the remaining demand, interest, and penalty. The member emphasized the lack of evidence for payment of duty on the scrap and the appellant's failure to provide timely replies, justifying the application of the extended period by the Revenue. The matter was referred to the Hon'ble President to resolve the difference of opinion regarding the reversal of cenvat credit for inputs rejected/spoiled at the job worker’s premises.

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