2018 (3) TMI 1113 - AT - Central Excise

CENVAT credit - manufacture of plastic closure (caps for plastic bottle and cans etc) - The case of the Department is that these goods are not input but are finished goods hence are not used in or in relation to the manufacture of final product but were traded as such in the open market - Rule 3(1) and 2(k)(l) of Cenvat Credit Rules - Held that - appellant have availed CENVAT credit in respect of plastic closure imported by them and the said goods were sold after testing and inspection - If excise duty was paid on such goods at the time of clearance no demand exist. Though the CENVAT Credit Rules, 2004 provided for eligibility of Cenvat credit in respect of input used in or in relation to the manufacture of final product but Rule 16 also provides Cenvat credit even in respect of duty paid finished goods subject to condition that the said finished goods on which Cenvat credit was availed should be cleared on payment of excise duty i.e. in case of the said finished goods undergone manufacturing process in terms of Section 2(F) Central Excise Act, assesse is required to pay duty on the transaction value, and in other case where the goods does not undergo process which amounts to manufacture, then excise duty equal to Cenvat credit availed on such goods should be paid - In the present case as per the claim of the appellant which was not disputed by the lower authorities that appellant have paid the excise duty at the time of sale of such imported plastic closure. It is found that appellant have paid duty equivalent to the Cenvat credit availed, no further demand would exist. Both the lower authorities have not verified the details of duty payments on the sale of the bought out goods on which credit was taken therefore this aspect needs to be verified - appeal allowed by way of remand.

Summary

Issues:
- Admissibility of Cenvat credit on imported finished goods
- Interpretation of Rule 16 of Central Excise Rules, 2002
- Applicability of judgments in determining Cenvat credit eligibility

Analysis:

1. Admissibility of Cenvat credit on imported finished goods:
The case involved a dispute regarding the admissibility of Cenvat credit on imported finished goods by the appellant, who manufactured plastic closures falling under specific Chapter Headings. The department contended that these imported goods were not inputs but finished goods traded in the open market, making the Cenvat credit inadmissible. The appellant argued that they had paid appropriate excise duty on these goods at the time of sale, negating any demand for recovery. The Tribunal noted that if excise duty was paid during the clearance of imported goods, no further demand would exist. The appellant's compliance with Rule 16 of the Central Excise Rules, 2002 was crucial in determining the admissibility of Cenvat credit on such goods.

2. Interpretation of Rule 16 of Central Excise Rules, 2002:
The Tribunal extensively analyzed Rule 16, which allows for Cenvat credit on duty paid finished goods under certain conditions. If the finished goods underwent a manufacturing process, the manufacturer must pay duty on the transaction value. In cases where the goods did not undergo a process amounting to manufacture, the manufacturer should pay duty equal to the Cenvat credit availed. The Tribunal emphasized that if duty was paid equivalent to the Cenvat credit availed on the imported goods, no further demand would arise. The Tribunal highlighted the importance of verifying details of duty payments on the sale of such goods to determine the admissibility of Cenvat credit accurately.

3. Applicability of judgments in determining Cenvat credit eligibility:
Both parties relied on various judgments to support their arguments regarding Cenvat credit eligibility. The appellant cited judgments emphasizing that if wrongly taken credit was paid back during clearances, Cenvat credit could not be denied. On the other hand, the Revenue referred to judgments underscoring that Cenvat credit is admissible only for inputs used in manufacturing the final product. The Tribunal observed that the judgments cited by the Revenue were not directly relevant to the facts of the present case, thereby favoring the appellant's position based on the specific circumstances and compliance with Rule 16. The Tribunal concluded by setting aside the impugned order and remanding the case for further verification of duty payments on the imported goods to determine the final admissibility of Cenvat credit.

In conclusion, the Tribunal's detailed analysis of Rule 16, consideration of relevant judgments, and emphasis on duty payment during the clearance of imported goods were pivotal in resolving the dispute over the admissibility of Cenvat credit on finished goods. The case underscored the importance of compliance with statutory provisions and the necessity for thorough verification of duty payments to ascertain the eligibility of Cenvat credit accurately.