2017 (11) TMI 1240 - AT - Central Excise

Refund claim - reversal of CENVAT credit - waste and scrap - case of appellant is that they are not liable to reverse the credit, since they are not manufacturing any exempted products and that waste and scrap cleared by them under nil rate of duty is not exempted goods manufactured by them - Held that - waste and scrap which arises during the course of manufacture of the final products cannot be considered as a product intended to be manufactured by the appellant. It is merely a by-product that emerges as inevitable consequence of manufacturing process and therefore the appellant is not liable to pay duty on such waste and scrap - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Refund of CENVAT credit for waste and scrap cleared at nil rate of duty.
2. Demand of interest and penalty on reversed CENVAT credit amount.

Analysis:
1. Refund of CENVAT credit for waste and scrap cleared at nil rate of duty:
The appellants, engaged in manufacturing power-driven pumps and electric motors, cleared waste and scrap at nil rate of duty under Notification No. 10/2003 and 10/2006. The department instructed them to pay 10% of the value of scrap under Rule 6(3)(b) of CENVAT Credit Rules, 2004, resulting in the reversal of credit. The appellants contended that since they did not manufacture exempted products, they were not liable to reverse the credit. They filed a refund application, which was rejected by the refund sanctioning authority and upheld by the Commissioner (Appeals). The Tribunal held that waste and scrap arising during manufacturing are not products intended to be manufactured, as per Supreme Court rulings. Therefore, the appellants were not required to reverse the credit or pay interest and penalty. The refund claim was allowed, and the demand for interest and penalty was set aside.

2. Demand of interest and penalty on reversed CENVAT credit amount:
The department demanded interest and imposed a penalty on the reversed CENVAT credit amount. The original authority confirmed the interest and penalty, which was upheld by the Commissioner (Appeals). The appellants argued that they were not liable for interest or penalty since they were not required to reverse the credit. The Tribunal agreed, setting aside the demand for interest and penalty. Both appeals were allowed, providing consequential relief if any. The judgment emphasized that waste and scrap generated during manufacturing processes are not products intended for manufacture, relieving the appellants from the obligation to reverse credit or pay additional charges.

In conclusion, the Tribunal ruled in favor of the appellants, allowing the refund of CENVAT credit for waste and scrap cleared at nil rate of duty and setting aside the demand for interest and penalty on the reversed credit amount. The judgment clarified the legal position regarding waste and scrap in manufacturing processes, aligning with Supreme Court precedents and providing relief to the appellants from undue financial burdens.