2013 (11) TMI 629 - HC - Central Excise

Goods Returned as Defective Input or Not as per Rule 57A - Whether as per Rule 173H and Rule 173L of the Central Excise Rules, 1944, remaking, refining, reconditioning, repairing or similar processes on defective goods returned to the manufacturer of the final product can be treated as an input for the purpose of Rule 57A of the Central Excise Rules, 1944 Held that - There is no restriction of bringing in the defective material in the factory on which the assessee has paid the excise duty at the time of removing those goods horn the factory - Once they have brought in the factory and if anybody wants to take benefit of refund of the duty because of the defects in the goods etc., then in that situation in stipulated period one can apply for the refund of the excise duty as provided by Rules 173H and 173L. Neither the Rules 173H nor 173L made any provision or had put any restriction that these goods which have been brought in the factory as defective goods cannot be used as input in the factory Relying upon CCE, Merrut v. Bhushan Steel & Strips Ltd. 2000 (6) TMI 47 - CEGAT, NEW DELHI - Revenue cannot dispute that the defective refractory bricks have been subjected to manufacturing and because of that reason only they have levied the excise duty for final product which have been made from the defective refractory bricks - there is no application for the Rules 173H and 173L Decided against the revenue.

Summary

Issues:
Whether defective goods returned to the manufacturer can be treated as an input for the purpose of excise duty credit?

Analysis:
The case involved the question of whether defective goods returned to the manufacturer could be considered as inputs for the purpose of excise duty credit. The appellant, a manufacturer of refractory bricks, used defective bricks returned by purchasers to manufacture new bricks and claimed MODVAT credit on them. The Tribunal, relying on earlier decisions, allowed the credit, stating that the new bricks were a new product after undergoing a manufacturing process. The appellant argued that Rule 173H allowed for refund of excise duty on defective goods returned, but there was no restriction on using such goods as inputs. The Tribunal's decision was based on the fact that the defective bricks were indeed used in the manufacturing process of new bricks, justifying the levy of excise duty on the final product.

The Court examined Rules 173H and 173L of the Central Excise Rules, 1944. Rule 173H permitted bringing back duty-paid goods for processes like remaking, refining, or repairing. Rule 173L allowed for refund of duty on goods returned for re-making or similar processes. The Court noted that Rule 173H did not restrict the use of defective goods as inputs for manufacturing. It emphasized that the issue was whether the defective bricks were used in the manufacturing process, not just for refund purposes. The Court held that since the defective bricks were indeed used in manufacturing new bricks, the Tribunal's decision was legally sound.

In conclusion, the Court upheld the Tribunal's decision, stating that the revenue could not dispute that the defective bricks underwent a manufacturing process, justifying the levy of excise duty on the final product. The Court found no application for Rules 173H and 173L in the present case, as the defective goods were used as inputs for manufacturing. Therefore, the taxation appeal was dismissed, affirming the Tribunal's decision as being in accordance with the law.