2018 (7) TMI 257 - AT - Central Excise

CENVAT credit availed on defective/rejected goods - duty paying documents - denial of credit on the ground that the distributors/dealers invoices cannot be considered to be proper cenvatable documents in terms of the provisions of Rule 9 of the Cenvat Credit Rules - Held that - The provisions of Rule 16 nowhere provide the documents on the basis of which credit can be availed. The only requirement is that the recipient of the damaged and returned goods has to state the particulars of such receipt in his records. Revenue is also not disputing the fact that the credit so availed by the appellant is otherwise not available to them and only objection of the Revenue is that the documents in question are not specified documents in terms of Rule 9. There is no dispute by the Revenue that while returning the goods, distributors have issued credit notes in the manufacturer favour which also reflect the duty amounts, which were originally paid by the appellant. In such a scenario, the technical objection raised by the Revenue as regards the documents not being specified under Rule 9 of Cenvat Credit Rules cannot be appreciated and upheld. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availment of Cenvat credit on returned goods based on distributors' invoices/challans.
- Interpretation of Rule 9 and Rule 16 of the Cenvat Credit Rules.
- Revenue's objection to the eligibility of documents for credit availed.
- Dispute over the Revenue's demand for payment and penalty imposition.
- Application of Rule 16 for availing credit on returned goods.
- Revenue's contention on the absence of specified documents under Rule 9.

Analysis:
The case involved the appellant, engaged in manufacturing PU Foam Sheets, Mattress, and Pillows, availing Cenvat credit on duty paid raw materials. The dispute arose when the audit revealed that the appellant received defective goods back from distributors, who returned them under their own invoices/challans. The Revenue initiated proceedings to deny credit based on these documents, citing Rule 9 of the Cenvat Credit Rules. The appellant argued that they followed Rule 16, allowing the receipt of returned goods for repair without double taxation, maintaining a Revenue neutral position.

The Commissioner upheld the demand and penalty, disagreeing with the appellant's interpretation. However, the Tribunal, after considering both parties' arguments, found that Rule 16 permits manufacturers to receive and avail credit on returned goods for subsequent clearances after repair. The Tribunal highlighted that Rule 16 does not specify the documents required for availing credit, emphasizing the need for recording such receipts. Referring to precedents, the Tribunal emphasized the Revenue neutral nature of Rule 16 and the allowance of credit on returned goods if utilized during subsequent clearances.

The Tribunal noted that the distributors issued credit notes reflecting the duty amounts originally paid by the appellant, supporting the appellant's claim. The Tribunal concluded that the technical objection raised by the Revenue regarding the documents not specified under Rule 9 was not valid. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant, providing consequential relief.

In the final judgment pronounced on 04/07/2018, the Tribunal clarified the application of Rule 16 in allowing credit on returned goods, emphasizing the absence of a specified document requirement under Rule 9 for availing such credit.