2009 (10) TMI 274 - AT - Central Excise

Cenvat Credit- The issue involved is whether the assessees are required to pay an amount equal to CENVAT credit taken under sub-rule (1) of Rule 16 on forgings manufactured initially and cleared on payment of duty and brought back to the factory and converted into scrap. The Commissioner (Appeals) has relied upon a decision of the Tribunal in CCE, Jaipur-I v. RFH Metal Castings (P) Ltd., 2005 (184) E.L.T. 194, holding that the process undertaken for reducing defective goods to scrap did not amount to manufacture. Therefore, as per Rule 16(2), the assessee is required to pay an amount equal to Cenvat credit taken under sub-rule (1). Following the ratio of the above decision, uphold the duty demands. Held that- the ratio of the Tribunal s decision in are applicable on all fours to the facts of the present and following the same I uphold the finding of the lower appellate authority that credit is required to be reversed. As regards the plea of time-bar raised by the assessees, I note that the Commissioner (Appeals) has not recorded any finding thereon. I, therefore, set aside the impugned order and remit the case for fresh decision on the limitation aspect.

Summary

Issues:
1. Whether the assessees are required to pay an amount equal to CENVAT credit taken on forgings converted into scrap.
2. Applicability of Tribunal decisions regarding reversal of credit on returned goods.

Analysis:

1. The case involved assessees who availed CENVAT credit on inputs and capital goods used in manufacturing final products, receiving back rejected forgings converted into scrap. The issue was whether they had to pay an amount equal to the CENVAT credit taken under Rule 16 of the Central Excise Rules, 2002. The Commissioner (Appeals) upheld the demand raised in a show-cause notice, leading to this appeal.

2. The Tribunal referred to Rule 16 which states that if goods brought to the factory are not subjected to a process amounting to manufacture, the manufacturer must pay an amount equal to the CENVAT credit taken. Relying on previous decisions, the Tribunal upheld the duty demands against the assessees, emphasizing that the process of reducing defective goods to scrap did not amount to manufacture, thus requiring the reversal of credit.

3. The assessees cited a Tribunal decision where rejected goods were further processed before being cleared as scrap, leading to the conclusion that reversal of credit was not necessary. However, in the present case, the finished goods were directly reduced to scrap without reprocessing. Therefore, following the precedent set in previous cases, the Tribunal upheld the requirement for credit reversal in this scenario.

4. Regarding the plea of time-bar raised by the assessees, the Commissioner (Appeals) did not provide a finding on this matter. Consequently, the Tribunal set aside the previous order and remitted the case for a fresh decision on the limitation aspect, ensuring the appellants have a reasonable opportunity to present their defense.

5. The appeal was disposed of with the decision pronounced in open court on 12-10-2009, highlighting the importance of adhering to the rules and regulations governing CENVAT credit in cases involving the conversion of goods into scrap without undergoing further processing.