2017 (12) TMI 1434 - AT - Central Excise

CENVAT credit - Return of inputs for rectification - applicability of Rule 3(5) of CCR, 2004 - Held that - the goods were returned to the supplier for rectification but the appellants have not produced any proof that the repaired goods were received back - further, the appellants have not followed the procedure as prescribed in Rule 16 of the CCR, 2004. Demand of differential duty upheld - penalty u/r 25 is set aside as the appellant is a state government undertaking and there is no intention to evade duty on the part of the appellant. Appeal allowed in part.

Summary

Issues:
- Differential duty demand
- Application of CENVAT Credit Rules
- Compliance with Central Excise Rules
- Proof of repaired goods received back
- Imposition of penalty

Differential duty demand:
The appeal challenged an order rejecting the appellant's appeal against a demand for differential duty amounting to &8377; 3,01,919. The appellant argued that the demand was not sustainable as they had paid the appropriate duty of 10% on inputs purchased from the supplier and had taken CENVAT credit. They contended that the duty paid at the time of returning defective goods was 10%, while the department demanded 12% duty applicable during the return period. The appellant also claimed that no additional duty was payable as no manufacturing operation had occurred, and the goods were returned in the same status as supplied. The appellant highlighted that the invoices clearly stated the materials were not for sale and were being returned within the guarantee period.

Application of CENVAT Credit Rules:
The appellant argued that Rule 3(5) of the CENVAT Credit Rules, 2004, was not applicable since the inputs were not removed as such. They emphasized that no manufacturing operation attracting additional duty had taken place, and the goods were not marketable. The appellant acknowledged an inadvertent failure to follow the procedure laid down in the Central Excise Rules, 2002, but requested leniency due to being a government-owned entity.

Compliance with Central Excise Rules:
The Commissioner(Appeals) noted that the appellant failed to produce proof that the repaired goods were received back from the supplier for rectification. It was observed that the appellant did not follow the prescribed procedure under Rule 16 of the CENVAT Credit Rules, 2004. The Commissioner(Appeals) highlighted the lack of evidence establishing that the goods set for repair and those returned were the same, citing relevant case laws related to duty on the manufacture of goods.

Proof of repaired goods received back:
The Commissioner(Appeals) emphasized the absence of corroborating evidence to prove that the goods sent for repair were the same as those returned to the supplier. The appellant's failure to provide proof of receiving the repaired goods back was a crucial factor in upholding the demand for differential duty.

Imposition of penalty:
While confirming the demand for differential duty, the Tribunal found that the imposition of a penalty of &8377; 50,000 on the appellant under Rule 25 of the Central Excise Rules, 2002, read with Section 11AC of the Act was not justified. Considering the appellant's status as a state government undertaking and the absence of intent to evade duty, the Tribunal dropped the penalty, taking a lenient view.

In conclusion, the appeal was partly allowed, confirming the demand for differential duty but dropping the penalty imposed on the appellant. The judgment highlighted the importance of complying with procedural requirements, providing evidence, and adhering to duty payment regulations in excise matters.