2012 (2) TMI 311 - AT - Central Excise

Credit on packing materials of capital goods Revenue demanding reversal for same considering it to be clearance of waste & scrap of capital goods, relying on sub-rule (5A) of Rule 3 of Cenvat Credit Rules, 2004 - Held that - Sub-rule (5A) of Rule 3 will apply to capital goods only. Packing material cannot be considered as capital goods even if it was used for packing capital goods. The matter is remitted to the adjudicating authority to verify whether only packing materials were cleared. If that is the case, the provisions of the said sub-rule will not apply and the appellants will not be liable for payment of any duty.

Summary

Issues: Application of sub-rule (5A) of Rule 3 of Cenvat Credit Rules, 2004 to packing materials received in a factory.

Analysis:
The judgment delivered by Mr. Mathew John at the Appellate Tribunal CESTAT, New Delhi, dealt with the issue of whether the credit should be reversed on packing materials in which capital goods were received in a factory, as demanded by the Revenue based on sub-rule (5A) of Rule 3 of Cenvat Credit Rules, 2004. The Appellant's Counsel argued against the Revenue's demand, citing a previous Tribunal decision where a similar requirement was waived and the matter was remitted for de-novo consideration. The Appellant requested a similar course of action in this case. On the other hand, the Revenue's representative highlighted that certain capital goods were cleared as waste and scrap, suggesting that the sub-rule in question applied and appropriate duty should have been paid. However, there was ambiguity regarding whether the cleared goods were capital goods after use or packing materials of capital goods received in the factory. The Revenue proposed remanding the case for de-novo decision to clarify this aspect.

Mr. Mathew John, after considering arguments from both sides, disagreed with the view that sub-rule (5A) of Rule 3 of Cenvat Credit Rules, 2004 applied to a scenario involving the clearance of packing materials. He clarified that the rule specifically pertained to capital goods and not packing materials, even if they were used for packing capital goods. Consequently, he concluded that the case warranted a waiver of the requirement of pre-deposit and admission of the appeal. The requirement was indeed waived, and he proceeded to decide the appeal with the consent of both parties. The matter was then remitted to the adjudicating authority to ascertain whether only packing materials were cleared. If confirmed, the provisions of the sub-rule would not apply, absolving the appellants from the duty payment obligation. As a result, the stay application and appeal were disposed of, providing clarity on the application of the rule in question to the specific circumstances of the case.