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2019 (9) TMI 669 - AT - Central ExciseCENVAT credit - items which were cleared by the appellant as scrap or as un-used items or partially used items - case of appellant is that these goods are generated out of the items procured prior to March 1994 and therefore there is no question of reversal of Cenvat credit - applicability of Rule 3(5A) of Cenvat Credit Rules, 2004 - HELD THAT - Rule 3(5A) applies on capital goods on which credit has been taken and which are cleared as waste and scrap. The product has to be first been received as capital goods and on which the credit has been availed. Before invoking Rule 3(5A) of the Cenvat Credit Rules, 2004, it is necessary for the Revenue to establish that items of capital goods are cleared as waste and scrap and on which the appellant has availed Cenvat credit. The defense of the appellant throughout is that they have not availed Cenvat credit in respect of capital goods - There are no merit in the submissions made by the appellant. Unless Revenue establishes that they availed Cenvat credit on the capital goods which are being removed as waste and scrap, provisions of Rule 3(5A) of Cenvat Credit Rules, 2004 cannot be invoked. In these circumstances, demand under Rule 3(5A) of Cenvat Credit Rules, 2004 is set-aside. CENVAT Credit - demand on waste and scrap items lime MS Oil paint drums, spent zinc based catalyst, used therminol, comox catalyst etc., these items - HELD THAT - The Section 2(d) defines the excisable goods and to be excisable goods, is to be first manufactured. The goods coming into existence as by-product during the process of manufacture cannot be treated as manufactured goods - Thus, even if the items cleared answered to the description under Section 2(d) of the Central Excise Act, duty can be charged only if they pass through the process under Section 2(f) of the Act - demand do not sustain. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Confirmation of demand of Central Excise duty, interest, and imposition of penalty. 2. Applicability of Rule 3(5A) of Cenvat Credit Rules, 2004. 3. Classification and applicability of Section 2(d) of the Central Excise Act, 1985. Issue-wise Detailed Analysis: 1. Confirmation of Demand of Central Excise Duty, Interest, and Imposition of Penalty: The appeal was filed by M/s. Gujarat State Fertilizers & Chemicals Limited against the confirmation of Central Excise duty, interest, and penalty. The demand was initially confirmed by the Adjudicating Authority but was set aside and remanded by the Tribunal for re-examination. Upon re-examination, part of the demand was confirmed. 2. Applicability of Rule 3(5A) of Cenvat Credit Rules, 2004: The appellant argued that the demand was confirmed on the ground that they had availed credit on used, scrap, and waste items, which were generated from items procured prior to March 1994. Rule 3(5A) of Cenvat Credit Rules, 2004, was invoked by the Revenue, which mandates the manufacturer to pay an amount equal to the duty leviable on the transaction value when capital goods are cleared as waste and scrap. The appellant contended that Rule 3(5A) applies only to capital goods as defined in Rule 2(a) of Cenvat Credit Rules, and the goods in question did not fall within this definition. They further argued that the goods were not classified before demanding the duty, and there was no machinery provision to recover the amount under Rule 3(5A). The Tribunal found merit in the appellant's submissions, stating that unless the Revenue establishes that Cenvat credit was availed on the capital goods being removed as waste and scrap, Rule 3(5A) cannot be invoked. Consequently, the demand under Rule 3(5A) was set aside. 3. Classification and Applicability of Section 2(d) of the Central Excise Act, 1985: The next issue related to the demand on waste and scrap items like MS Oil paint drums, spent zinc-based catalyst, used therminol, comox catalyst, etc. The Revenue invoked Section 2(d) of the Central Excise Act, which defines "excisable goods" as goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985, and includes any article, material, or substance capable of being bought and sold for consideration. The appellant relied on the decision of the Hon'ble Bombay High Court in Hindalco Industries Limited vs. UOI and the Tribunal decision in Hariyana Steel and Power vs. CCE. The Tribunal observed that Section 2(d) defines excisable goods, which must first be manufactured. The goods coming into existence as by-products during the manufacturing process cannot be treated as manufactured goods. The Tribunal cited the Supreme Court's ruling in Grasim Industries Ltd., which held that for goods to be excisable, they must satisfy the test of being produced or manufactured in India under Section 2(f) of the Act. The Tribunal concluded that even if the items cleared answered the description under Section 2(d), duty could only be charged if they passed through the process under Section 2(f). Since this was not established, the demand on this count was also set aside. Conclusion: The appeal was allowed, and the demand under Rule 3(5A) of Cenvat Credit Rules, 2004, and Section 2(d) of the Central Excise Act, 1985, was set aside. The Tribunal emphasized the necessity for the Revenue to establish that Cenvat credit was availed on capital goods being removed as waste and scrap and that the goods must satisfy the test of being produced or manufactured in India to be excisable.
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