2018 (9) TMI 249 - AT - Central Excise

CENVAT Credit - tractors were returned for defects - Manufacture or not? - Rule 16 (1) of Cenvat Excise Rules, 2002 - case of Revenue is that the said tractors were not subjected to the processes amounting to manufacture and therefore in terms of Sub-Rule (2) of Rule 16 ibid, the appellants are required to reverse the Cenvat credit availed on receipt of the said tractors into the factory - Held that - Only those vehicles which are suffered heavy damages during transit are returned to the factory and they were completely dismantled and only the goods parts are salvaged and thereafter they were put to the assemble line for complete re-marking - in the present case, also the returned tractors were stripped of external assemble and then put on assemble line. Therefore, the process amounted to manufacture - appeal allowed - decided in favor of appellant.

Summary

Issues: Whether the tractors subjected to repair activities amount to manufacture under Rule 16 of Central Excise Rules, 2002, and if the appellants are required to reverse the Cenvat credit availed on receipt of the tractors into the factory.

Analysis:

1. The appellants were engaged in manufacturing tractors and were clearing them with or without payment of excise duty. The appellants received tractors for defect removal under Rule 16(1) of Cenvat Excise Rules, 2002, and availed Cenvat credit on the excise duty paid on these tractors. The Revenue initiated proceedings to recover the availed amounts, stating that the tractors were not subjected to processes amounting to manufacture. The original authorities confirmed the demand, which was upheld by the Ld. Commissioner (Appeals), leading to the present appeals before the Tribunal.

2. The Ld. Counsel for the appellants argued that the tractors were not merely repaired but entirely remade and manufactured. Various repair activities were undertaken to create a new and usable tractor, including replacing steering assembly, brake liner, bearing rubber parts, gear assemblies, hydraulic pump, and more. The counsel relied on documents like a certificate of the Cost Accountant, list of tractors with replaced chassis, and an affidavit from the production head. Reference was made to a previous Tribunal order in Maruti Udyog's case, where similar processes were held to amount to manufacture.

3. The Ld. AR supported the impugned orders, while the Tribunal considered the processes the tractors underwent. Comparing the case to Maruti Udyog's precedent, where heavily damaged vehicles were dismantled and reassembled, it was found that the subject tractors were stripped of external assemblies and then put on the assembly line. The Tribunal concluded that the processes undertaken by the appellants did amount to manufacture, similar to the precedent case. Consequently, the impugned orders were set aside, and the appeals filed by the appellants were allowed, entitling them to consequential relief as per the law.

This detailed analysis of the judgment reveals the intricacies of the case, the arguments presented by both parties, and the Tribunal's reasoning leading to the final decision in favor of the appellants.