2012 (1) TMI 54 - AT - Central Excise

CENVAT credit on own final product returned by buyers returned goods were remelted by using same machinery and fresh products emerged duty paid on such goods Held that - As per Rule 16, as clarified in Chapter 18 of the Supplementary Instructions issued by CBEC, where the returned goods are subjected to a process amounting to manufacture, the manufacturer shall pay duty at the appropriate rate on the goods so manufactured, and for payment of such duty, the CENVAT credit of the duty paid on the returned goods could be utilized. - Decided in favor of assessee.

Summary

Issues:
- Demand of duty arising from denial of CENVAT credit on own final product returned by buyers
- Whether the process of reprocessing returned goods amounts to manufacture for availing CENVAT credit
- Applicability of Rule 16 of the Central Excise Rules, 2002 in the given scenario

Analysis:

1. Demand of Duty and Denial of CENVAT Credit: The case involved a dispute regarding the demand of duty amounting to Rs. 4,76,052/- due to the denial of CENVAT credit to the assessee on their own final product returned by buyers during a specific period. The buyers returned consignments of PVC compound, PVC Master Batch, and LDPE/HDPE compound as these goods did not conform to their specifications. The goods were cleared by the buyers on payment of duty and under statutory invoices. The appellant reprocessed these returned goods and cleared the fresh products by paying appropriate duty under Section 4 of the Central Excise Act.

2. Manufacture of Returned Goods: The appellate tribunal analyzed the nature of the process applied to the returned goods. It was established that the returned goods were remelted using the same machinery, resulting in the emergence of fresh products such as PVC compound and PVC Master Batch. These fresh products were then cleared after paying the required duty. The tribunal noted that the process applied to the returned goods amounted to manufacturing as per Rule 16 of the Central Excise Rules, 2002. The rule clarifies that if returned goods undergo a process that constitutes manufacture, the manufacturer is obligated to pay duty on the goods manufactured, and the CENVAT credit of duty paid on the returned goods can be utilized for this purpose.

3. Applicability of Rule 16: Based on the factual matrix and the interpretation of Rule 16 along with the Supplementary Instructions issued by CBEC, the tribunal concluded that the appellant should not have been asked to reverse the CENVAT credit availed on the returned goods. Since the returned goods underwent a manufacturing process and were cleared after paying duty, the denial of CENVAT credit was deemed unjustified. Therefore, the tribunal set aside the impugned order and allowed the appeal in favor of the assessee.

In conclusion, the judgment by the appellate tribunal in this case revolved around the interpretation of Rule 16 of the Central Excise Rules, 2002 concerning the treatment of returned goods that undergo a manufacturing process. The tribunal ruled in favor of the assessee, highlighting that the process applied to the returned goods constituted manufacture, allowing the utilization of CENVAT credit for duty payment on the manufactured goods.