2017 (8) TMI 899 - AT - Central Excise

CENVAT credit - compensation received on imported inputs/goods of 9051 kgs. of PVC film which had been used in or in relation to the manufacture of finished goods - defective cylinders cleared as scrap - Held that - There is no evidence on record to show that the defective PVC films were not used in the manufacture of finished goods. Merely receipt of compensation for defective inputs cannot be a ground for rejection of the credit availed by the appellant without establishing the fact that the said defective inputs had been used in or in relation to the manufacture of finished goods which the appellant categorically claimed in their reply to the show cause notice before the lower authorities - demand set aside. Defective cylinders cleared as scrap - Held that - since the process of converting cylinders into scrap does not result into manufacture, the appellant required to reverse the credit availed under sub-Rule (1) of Rule 16 of Central Excise Rules, 2002 - demand upheld. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Whether the credit of ?52,548 relating to compensation should be reversed.
2. Whether the credit of ?28,408 on defective cylinders cleared as scrap is valid.

Analysis:
1. The appellant received ?2,78,761 as compensation for defective inputs from an overseas supplier. The Revenue demanded reversal of ?52,548 CENVAT credit assuming the defective material was not used in manufacturing finished goods. However, the appellant claimed the defective inputs were indeed used in production. The Tribunal found no evidence to reject the credit solely based on compensation receipt. The Revenue failed to establish that the defective inputs were not utilized in manufacturing. Thus, the demand to reverse ?52,548 credit was set aside.

2. Regarding the ?28,408 credit on defective cylinders cleared as scrap, the appellant argued that they availed credit under Rule 16 of the Central Excise Rules, 2002 when rejected cylinders were returned to their factory. The Revenue upheld the demand, stating that converting cylinders into scrap does not constitute manufacturing. The Tribunal agreed with the Revenue's view, affirming the need to reverse the credit under Rule 16. Consequently, the confirmation of ?28,408 demand with interest and penalty was upheld. The impugned Order was modified accordingly, partially allowing the appeal.

In conclusion, the Tribunal set aside the demand to reverse ?52,548 credit related to compensation, while upholding the confirmation of ?28,408 credit on defective cylinders cleared as scrap. The appeal was partly allowed, and the Order was modified accordingly.