2024 (11) TMI 714 - AT - Central Excise

Reversal of CENVAT credit - availment of credit of the duty earlier paid under Rule 16(1) of the Central Excise Rules, 2004 as if it is an input - credit sought to be reversed on the ground that machine was not subjected to the process of manufacture - whether the availment of differential cenvat credit of Rs.1,59,543/- and Rs.3371/- by the appellant under Rule 16(2) of Central Excise Rules, 2002 is justified? - Admissibility to credit on demurrage charges. Credit sought to be reversed on the ground that machine was not subjected to the process of manufacture - HELD THAT - The appellant after receipt of the machine, in response to the Department s query submitted that the lathe machine is a customised capital goods and it is fabricated according to the required specifications of the customer. They contended that after the machine was received from the Pune customer, it was remanufactured by dismantling and thereafter adding certain materials / inputs enhancing its features and assembled it to make it customer-worthy. These works carried out on the lathe machine cannot be termed as process of repairing of rejected machine but results into manufacture. The said goods has been cleared to another customer after customising it according to his specifications. Also, on going through the list of materials appended with the appeal paper book, it is seen that certain features of the earlier machine after dismantling it had been added and as a new commodity with distinct use had emerged as a result of the processes; therefore, bringing out a new machine. Hence, the processes resulted into manufacture. In these circumstances, the payment of the duty on the transaction value of remanufactured machine is justified. Admissibility to credit on demurrage charges - HELD THAT - It is seen that the same was taken on proper tax paid invoices and leviability of tax and its classification was is not disputed; hence, availment of credit cannot be disputed. The impugned order is set aside and the appeal is allowed.

Summary

Issues:
1. Whether the appellant is required to reverse the credit availed on a returned machine under Rule 16(2) of the Central Excise Rules, 2002.
2. Whether the appellant's process of re-manufacturing the rejected machine amounts to manufacture.
3. Whether the appellant's availing of cenvat credit on demurrage charges is justified.

Detailed Analysis:
1. The appeal was filed against an order passed by the Commissioner of Central Excise(Appeals-I), Bangalore, regarding the appellant, engaged in manufacturing high-tech machineries, clearing a precision CNC Universal Turning Machine to a customer who later rejected it. The appellant availed credit of duty paid on the machine under Rule 16(1) of the Central Excise Rules, 2004. A show-cause notice was issued for recovery of differential duty, which was confirmed upon adjudication. The appellant contended that the machine was re-manufactured, not just repaired, and hence, duty was paid on the transaction value at the time of clearance. The issue was whether the appellant needed to reverse the credit under Rule 16(2) of the Central Excise Rules, 2002.

2. The main issue was whether the process undertaken by the appellant in re-manufacturing the rejected machine amounted to manufacture. The appellant argued that the machine was dismantled, parts were reassembled with additional components, and the machine was cleared to a different party after customization according to customer requirements. The Tribunal found that the processes undertaken resulted in a new commodity with distinct features, thus constituting manufacture. The Tribunal referred to various judgments supporting the view that such processes amount to manufacture, including the customization of capital goods for specific customers.

3. The appellant also availed cenvat credit on demurrage charges paid for storage of goods. The appellant argued that since the payment of tax was not questioned, the admissibility of credit could not be denied based on classification disputes. The Tribunal agreed with the appellant, stating that the credit on demurrage charges was justified as it was taken on proper tax-paid invoices, and the classification or liability of tax was not in dispute.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief, if any, as per law. The judgment emphasized that the processes undertaken by the appellant constituted manufacture, justifying the payment of duty on the transaction value of the remanufactured machine and upheld the appellant's availing of cenvat credit on demurrage charges.