2017 (7) TMI 490 - AT - Central Excise

CENVAT credit - catch covers, a packing material - denial for the reason that the catch covers are not the essential primary or secondary packing material used for the manufacture and marketability in the normal course of trading - Held that - It is upto the trade that which type of packing has to be used in the manufacture and sale of final products. Therefore, the Revenue should not have any say or decided, which packing material is essential and otherwise to decide the eligibility of the CENVAT Credit. Once it is not disputed that the packing material is used in the manufacture of final products and sale thereof, such packing material is an admissible input and the credit is allowable. CENVAT credit - for the period November 2001 to January 2008, the Cenvat Credit in respect of catch covers was proposed to be denied on the ground that the value of the cost of the catch covers was not included in the value of the physician samples supplied free of cost - Held that - the condition of inclusion of cost of packing material in the final product in order to allow the credit is not required - credit allowed. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
- Denial of Cenvat Credit for catch covers in show-cause notices
- Inclusion of cost of catch covers in value of final products for Cenvat Credit

Analysis:
1. Denial of Cenvat Credit for catch covers in show-cause notices:
The issue revolved around nine show-cause notices, with one dated 04/09/1998 alleging that Cenvat Credit for catch covers was inadmissible as they were not considered essential packing material. The remaining eight notices from November 2001 to January 2008 proposed denial of credit due to the cost of catch covers not being included in the value of physician samples. The adjudicating authority and Commissioner (Appeals) upheld the demand, leading to the appeal. The appellant argued that catch covers were used for packing final products and that there was no requirement under Cenvat Credit Rules to include the packing material cost in the value of final products post-01/04/2000.

2. Inclusion of cost of catch covers in value of final products for Cenvat Credit:
The appellant contended that the denial of credit based on the cost of catch covers not being included in the value of final products was unfounded. The Assistant Commissioner for Revenue emphasized that including the cost of packing material in final products was crucial to avoid the cascading effect and maintain the purpose of Modvat/Cenvat Credit. However, the tribunal disagreed with this reasoning, stating that the choice of packing material used in manufacturing and selling final products should be at the discretion of the trade. It was ruled that as long as the packing material was used in the manufacturing and sale of final products cleared on duty payment, it qualified as an admissible input for Cenvat Credit, regardless of whether its cost was included in the final product value.

In conclusion, the tribunal set aside the impugned order and allowed the appeal, emphasizing that the denial of credit based on the essentiality of packing material or the inclusion of its cost in the final product value lacked legal support under the Cenvat Credit Rules. The judgment highlighted the importance of focusing on the actual usage of inputs in manufacturing final products rather than imposing additional conditions regarding the inclusion of input costs in final product values for Cenvat Credit eligibility.