2019 (5) TMI 1454 - AT - Central Excise

CENVAT Credit - reduction of credit towards debit notes issued against Quality difference - price of the input supplied has been reduced as compared to the price charged on the invoices and debit notes were issued - HELD THAT - The debit notes was raised not for the quantity difference but for the inferior quality of the material. Once it is not disputed that the entire quantity for which the invoice was raised, was received by the appellant and used in the manufacture, they are eligible for cenvat credit on the entire excise duty paid on inputs received and used. Accordingly, only due to quality difference the debit notes raised by the appellant Cenvat credit, cannot be denied. The CENVAT credit was wrongly denied by the lower authority - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Denial of cenvat credit due to reduction in price of inputs
- Validity of debit notes issued for inferior quality of materials

Analysis:

The case involved the appellant, a manufacturer of excisable goods, facing a demand to reverse cenvat credit due to reduction in the price of inputs. The appellant procured inputs like laminate, polyester, ink, etc., and upon discovering that some raw materials did not meet required norms during the manufacturing process, negotiated prices and issued debit notes for price reduction. The department contended that the appellant must reverse the cenvat credit due to the reduced input prices. The Commissioner upheld the demand.

The appellant's counsel argued that despite receiving and using the entire quantity of inputs in manufacturing, the price reduction through debit notes was due to the inferior quality of materials only identified during the manufacturing process. Citing relevant judgments, the counsel emphasized that duty was paid based on invoice prices, and hence, the debit notes for low-quality goods should not affect the cenvat credit eligibility.

The Revenue, represented by the Superintendent, supported the findings of the impugned order, maintaining the necessity of reversing cenvat credit due to the price reduction through debit notes.

Upon hearing both sides and examining the records, the Tribunal noted that the debit notes were issued not for quantity differences but for inferior material quality. As the appellant had received and used the entire quantity of inputs for which invoices were raised, they were entitled to cenvat credit on the excise duty paid for those inputs. The Tribunal referenced the Indore Composite Pvt. Ltd case, highlighting that the Cenvat Credit Rules do not provide for denying cenvat credit when debit notes are issued for compensating sub-standard goods.

Based on the Tribunal's decision and the observations made, it was concluded that the denial of cenvat credit by the lower authority was incorrect. Consequently, the impugned order was set aside, and the appeal was allowed.