2008 (11) TMI 232 - AT - Central Excise

Cenvat - Returned goods - Rule 16 of Central Excise Rules, 2002 - exemption Notification No. 30/2004-C.E. - held that - Rule 16(1) of CER does not envisage that returned goods should be treated as inputs but for the purpose of taking CENVAT credit of the duty suffered by it. There is nothing in the Rule which supports the finding that the final products received back by the assessee should be continued to be treated as input for any purpose after the credit of duty paid was availed. As the Revenue has no case that the appellants had not reversed credit relatable to inputs in stock and at various stages of manufacture including the finished goods, the impugned demands of credit and interest are not sustainable.

Summary

Issues:
1. Availment of CENVAT credit on returned goods under Rule 16 of CER.
2. Reversal of CENVAT credit due to exemption of final products from duty.
3. Interpretation of Rule 16(1) of CER regarding treatment of returned goods as inputs.

Analysis:
1. The case involved M/s. Sundaram Textiles Limited, engaged in cotton yarn manufacturing, who received back a consignment of yarn cleared on duty payment and availed credit under Rule 16 of the Central Excise Rules, 2002. Subsequently, their final products became duty-exempt, leading to the reversal of CENVAT credit on inputs. The dispute arose when the authorities demanded the reversal of the entire credit taken on the returned goods. The tribunal examined Rule 16(1) of CER, which allows credit on duty-paid goods brought back to the factory, treating them as inputs under CENVAT Credit Rules, 2002. The tribunal emphasized that the rule does not mandate treating returned goods as inputs beyond availing credit, granting the assessee the discretion to handle them as needed. As the Revenue failed to prove non-reversal of credit on other inputs, the demand for credit reversal on returned goods was deemed unsustainable.

2. The tribunal highlighted that Rule 16(1) of CER enables availing credit on returned goods without necessitating their continued treatment as inputs post-credit utilization. The rule empowers the assessee to decide on the treatment of such goods after availing credit, aligning with the CENVAT Credit Rules. Since the appellants had appropriately reversed credit on other inputs upon exemption of final products, the demand for reversing the entire credit on returned goods was deemed legally incorrect. The judgment emphasized that the rule does not support treating returned goods as inputs post-credit availing, ensuring the assessee's liberty in utilizing the credit as per CENVAT rules.

3. Ultimately, the tribunal set aside the impugned order and allowed the appeal, emphasizing that Rule 16(1) of CER does not mandate treating returned goods as inputs beyond availing credit. The judgment underscored the importance of interpreting the rule in alignment with the CENVAT Credit Rules, granting the assessee the freedom to handle returned goods as necessary post-credit utilization. By upholding the liberty provided by the rule and dismissing the demand for credit reversal on returned goods, the tribunal provided clarity on the treatment of returned goods under CENVAT credit provisions, ensuring compliance with legal requirements and safeguarding the assessee's rights in utilizing availed credits effectively.