2017 (10) TMI 1035 - AT - Central Excise

CENVAT credit - returned goods - Rule 16(2) of the CER, 2002 - Held that - no process has been carried out by the appellant on returned goods - the appellant is required to reverse Cenvat credit in terms of Rule 16(2) of the Central Excise Rules, 2002 as no process has been undertaken by the appellant. Extended period of limitation - Held that - the clearance by the appellant as scrap of these returned goods was in the knowledge of the Department - extended period of limitation is not invokable. The matters are remanded back to the Adjudicating Authority for correct quantification of the demand - appeal allowed by way of remand.

Summary

Issues:
- Availment of Cenvat credit on returned goods
- Requirement to reverse Cenvat credit under Rule 16(2) of the Central Excise Rules, 2002
- Invocation of extended period of limitation
- Imposition of penalty

Analysis:
The appellant, engaged in manufacturing excisable goods, availed Cenvat credit on goods returned due to defects and cleared them after rectification or as scrap. The Revenue contended that since no processing was done on the returned goods, Cenvat credit should be reversed under Rule 16(2). Three Show Cause Notices were issued, invoking the extended period of limitation, demanding credit reversal, and imposing penalties. The appellant argued that since some goods were rectified and cleared after payment of duty, and some cleared as scrap, they were not obligated to reverse credit. They also claimed that since the Department was aware of the clearance, the extended period was inapplicable.

Upon review, the Tribunal found that for goods cleared after rectification and payment of duty, the duty payment itself constituted reversal of Cenvat credit. Citing a Bombay High Court decision, it ruled that credit reversal was not required in such cases. However, for goods cleared as scrap without processing, credit reversal was necessary under Rule 16(2). The Tribunal also held that since the Department was aware of the scrap clearance, the extended period of limitation could not be invoked. Consequently, demands within the limitation period were upheld, while penalties and demands beyond the limitation were set aside. The matter was remanded for correct quantification of the demand by the Adjudicating Authority.

In conclusion, the impugned orders were set aside, and the case was remanded for further proceedings in accordance with the Tribunal's observations.