2014 (7) TMI 695 - AT - Central Excise

Admissibility of credit on duty paid goods on their return to the factory - Applicability of Rule 16(3) - Held that - finished duty paid goods have been deemed to be inputs for the purpose of taking credit as per Cenvat Credit Rules, 2004. A combined reading of Rule 16 (1) and 16(2) of Central Excise Rules, 2002 clearly conveys that processes undertaken by the recipient of duty paid goods need not amount to manufacture for taking credit and this Rule talks only of admissibility of Cenvat credit on return of duty paid goods. The processes undertaken may or may not lead to manufacture. There could be a situation where duty paid goods received in the factory for certain processes may not amount to remanufacture or certain goods received back as rejected may be sold to another client without even carrying any process. The whole intention of Rule 16 of Central Excise Rules, 2002 is that a manufacturer should not be made to pay the duty with respect to certain processes on return which may not amount to manufacture. At the same time, it is also essential that a manufacturer does not clear freshly manufactured goods free of duty in the guise of reprocessing of duty paid goods received in the factory. To check this misuse, Revenue may be well within its right to ask the appellant to provide their internal records/ process cards to establish that duty paid goods returned to the factory, for which credit has been taken, have been subsequently removed on payment of duty or were cleared as such where equivalent amount of cenvat credit taken has been reversed. - Matter remanded back - Decided in favour of assessee.

Summary

Issues: Admissibility of credit on duty paid goods returned to the factory under Rule 16 of Central Excise Rules, 2002.

Analysis:
1. Background: The appeal was filed concerning non-compliance with a pre-deposit order of Rs. 20 Lakh by the first appellate authority in response to Order-in-Appeal No. SRP/08/DMN/2013-14 dated 02.4.2013.

2. Appellant's Argument: The appellant's representative argued that the pre-deposit order was unreasonable as the credit was correctly taken under Rule 16(1) and 16(2) of the Central Excise Rules, 2002. It was contended that Cenvat Credit Rules, 2004 did not apply, and even if returned goods were cleared without manufacturing processes, equivalent credit could be reversed at the time of removal.

3. Revenue's Defense: The Revenue's representative defended the orders of the adjudicating authority and the first appellate authority.

4. Key Issue: The central issue revolved around the admissibility of credit on duty paid goods returned to the factory as per Rule 16 of the Central Excise Rules, 2002. The Tribunal noted that the issue was narrow, leading to the appeal being taken up for disposal after allowing the stay petition.

5. Rule Interpretation: Rule 16 of Central Excise Rules, 2002 was crucial in determining the admissibility of credit on returned goods. The rule allowed for the crediting of duty paid goods as inputs, irrespective of whether manufacturing processes were involved. The rule aimed to prevent manufacturers from paying duty on non-manufacturing processes while ensuring that goods were not cleared duty-free under the pretext of reprocessing.

6. Decision and Remand: The Tribunal ordered a remand to the adjudicating authority for a de-novo adjudication, requiring the appellant to provide internal records to show duty compliance on returned goods. An amount of Rs. 5,00,000 was to be deposited within eight weeks for cooperation with the proceedings. The appeal was allowed by remanding the case and setting aside the first appellate authority's order.

This detailed analysis of the judgment highlights the legal arguments, rule interpretations, and the Tribunal's decision, providing a comprehensive overview of the issues addressed in the case.