2008 (1) TMI 406 - HC - Central Excise

Dis-allowance of Cenvat credit claimed under Rule 16(1) of the Central Excise Rules for the goods returned - Held that - The first part of sub-clause (2) of Rule 16 says that if the process to which the goods are subjected before return does not amount to manufacture, the duty payable is equal to the Cenvat credit taken under sub-rule (1) and on the other hand if the goods returned are subject to manufacture, then duty shall be payable at the applicable rate on the date of removal and on the value determined under sub-section (2) of Section 3 or Section 4 of section 4A of the Act. This part of sub-rule only says that normal duty is payable on the re-manufactured product cleared by the manufacturer. This has nothing to do with the credit taken under sub-rule (1). In other words, in order to avail Cenvat credit under sub-rule (1) there is no requirement for manufacturer to clear the returned goods to the same party who returned the goods. We therefore declare that the appellant is entitled to claim duty credit on returned goods under sub-rule (1). The appeal is accordingly allowed cancelling the order of the Tribunal confirming disallowance of the claim.

Summary

Issues:
- Appeal against disallowance of Cenvat credit claimed under Rule 16(1) of the Central Excise Rules for goods returned.
- Interpretation of sub-rules (1) and (2) of Rule 16 of the Central Excise Rules.
- Whether the appellant is entitled to claim duty credit on returned goods under sub-rule (1).

Analysis:
The case involves an appeal filed under Section 35G of the Central Excise Act against a Tribunal order confirming the disallowance of Cenvat credit claimed by the appellant under Rule 16(1) of the Central Excise Rules for goods returned. The appellant, engaged in the manufacture and sale of Aluminium Extrusions and parts of electric motors, claimed credit for duty paid on goods returned by the purchaser, which were later re-manufactured and sold to different parties. The Tribunal directed the reversal of Cenvat credit as the goods were not returned to the same party as per sub-rule (2) of Rule 16. The appellant contended that sub-rules (1) and (2) operate differently, and there is no condition in sub-rule (1) requiring goods to be re-manufactured and sold to the original purchaser. The Ministry of Finance's Annexure-R1 clarified that credit eligibility arises only if goods are reconditioned and cleared to the same party who returned them.

The High Court analyzed sub-rules (1) and (2) of Rule 16 and concluded that they operate differently. Sub-rule (1) entitles a manufacturer to duty credit for returned goods without specifying a requirement for re-manufacturing or selling to the original purchaser. The entitlement for credit under sub-rule (1) is absolute upon the return of goods for re-making, refining, or other reasons. The manufacturer can claim Cenvat credit if goods are returned as defective and warrant re-conditioning or re-manufacturing. Sub-rule (2) deals with the manufacturer's liability for duty payment upon clearance of returned goods, not affecting the credit claimed under sub-rule (1). The Court clarified that there is no requirement under sub-rule (1) for the manufacturer to clear returned goods to the same party who returned them. Consequently, the Court declared that the appellant is entitled to claim duty credit on returned goods under sub-rule (1), allowing the appeal and canceling the Tribunal's disallowance of the claim.