2020 (12) TMI 365 - AT - Central Excise

CENVAT Credit - rejected goods - rectify/re-make the goods for sale - case of the revenue is that in the cases, the goods were cleared as scrap, the appellant is required to pay cenvat credit availed on such goods at the time of clearance as they have removed the goods as such in terms of Rule 16(2) of Central Excise Rules, 2002 - HELD THAT - The rejected goods were received by the appellant and at the time of receiving the rejected goods, the appellant took the cenvat credit in terms of Rule 16 of Central Excise Rules, 2002. It is also fact on record that these goods were subject to re-make and during the process of re-make certain goods were found cannot be re-made and the same were cleared as scrap on payment of duty, therefore, the provision of Rule 16(2) are not applicable to the facts of this case to allege that the goods were cleared as such. In fact, as per the facts of the case itself, it is clear that the returned goods were subjected to some process and when they were not found up to the mark were cleared on payment of duty as scrap - The appellant has correctly paid the duty as scrap at the time of clearances. Revenue Neutrality - HELD THAT - The appellant has cleared these goods to their another unit. Admittedly, whatever duty have been paid, the same are entitled to cenvat credit to themselves. In that circumstances, it is a revenue neutral situation. In that circumstances also, the appellant are not required to pay any differential duty or any amount on account of cenvat credit. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand raised under Rule 16 of Central Excise Rules, 2002 on goods rejected by buyer and alleged lack of remake process.

Detailed Analysis:

Issue 1: Demand raised under Rule 16 of Central Excise Rules, 2002
The appellant appealed against the demand raised under Rule 16 of Central Excise Rules, 2002 on goods rejected by the buyer. The appellant had availed cenvat credit of duty paid on returned goods, undertaking to rectify or remake them for sale. The revenue contended that when goods were cleared as scrap to a sister unit, the appellant was required to reverse the cenvat credit. Two show cause notices were issued, leading to confirmation of demand, interest, and penalty. The appellant argued that they correctly availed cenvat credit and paid duty on clearances, making the exercise revenue neutral. The Ld. Counsel cited relevant case laws supporting their stance.

Issue 2: Applicability of Rule 16(2) of Central Excise Rules, 2002
The Ld. AR argued that the appellant did not process goods cleared as scrap, necessitating cenvat credit reversal under Rule 16(2). Citing precedents, the Ld. AR supported the impugned order. However, upon hearing both parties, it was observed that the rejected goods were subject to a remake process, with unsalvageable items cleared as scrap on payment of duty. The Tribunal found Rule 16(2) inapplicable, as the goods were not cleared as such but after undergoing a process. The case laws cited by the Ld. AR were deemed irrelevant to the factual scenario.

Issue 3: Revenue Neutral Situation
The appellant cleared goods to their sister unit, entitling them to cenvat credit on paid duty. The Tribunal concluded that this created a revenue-neutral situation, where no additional duty or cenvat credit reversal was warranted. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief. The judgment emphasized the correct payment of duty on scrap clearances and the entitlement to cenvat credit, rendering the proceedings against the appellant unsustainable.

This comprehensive analysis of the judgment highlights the key issues, arguments presented by both parties, relevant legal provisions, and the Tribunal's reasoning leading to the decision in favor of the appellant.