2015 (12) TMI 1493 - AT - Central Excise

Eligibility of CENVAT Credit - returned goods - Credit of duty paid on the vehicles at the time of their initial clearance which were later brought back to the factory due to damage - Held that - Admitted facts of the case are that the appellants discharged due duty at the time of clearance of vehicle. Due to damage in transit, the said duty paid vehicle is brought back to the factory for being re-made or salvaged to the extent possible. We find that the case of the appellant is clearly covered by the provisions of Rule 16 (1). The said rule permits Cenvat credit of the duty paid as if such goods are received as inputs under the Cenvat Credit Rules, 2002 and to utilize this credit according to the said rules. Clearly a legal fiction has been created in this rule. In normal course duty paid motor vehicle cannot be an input for making same type of motor vehicle. Here the said vehicle is deemed to have been input only because it is brought into the factory for being re-made, refined, re-conditioned or for any other reason. We find the scope for which a duty paid vehicle can be brought to the factory is very wide and includes the processes undertaken by the appellants in the present case - When the vehicle is brought back to the factory for the intended purposes as stipulated under Rule 16 (1) the credit of duty paid on such vehicle is available to the appellant. Such vehicles undergo a process of manufacture and become part of process of production of new vehicle is settled and undisputed. As such, we find no legal basis for denial of credit either partly or fully in respect of such vehicles in terms of clear provisions of Rule 16 (1) Further, first show cause notice being completely time barred as the issue involved under dispute is well within the knowledge of the Department for long and has been-subject matter of decisions including by this Tribunal - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
- Eligibility of Cenvat credit for duty paid on vehicles returned to factory due to damage
- Interpretation and application of Rule 16 of Central Excise Rules, 2002
- Misapplication of provisions by lower authorities
- Apportionment of credit for salvaged and non-usable parts
- Time bar on the first show cause notice

Analysis:
The appellants, engaged in manufacturing motor vehicles, faced a dispute regarding the eligibility of Cenvat credit for duty paid on vehicles returned to the factory due to damage. The issue revolved around the interpretation and application of Rule 16 of Central Excise Rules, 2002. The lower authorities denied the credit mainly on the grounds that the damaged vehicles brought back were not the same goods cleared initially and that the damaged parts were lost in the repair process. The appellants argued that the lower authorities misapplied Rule 16 and wrongly relied on the definition of inputs, ignoring the deeming provision under Rule 16 (1). They contended that the damaged vehicles, brought back for remaking into saleable vehicles, qualified for credit under Rule 16 (1) as a manufacturing activity permitted by the rule.

The Tribunal examined Rule 16, which allows credit for duty paid goods brought back to the factory for re-making or re-conditioning, treating them as inputs. The Tribunal found that the appellants' case fell within the scope of Rule 16 (1) as the duty paid vehicles were brought back for re-making, making them eligible for credit under the Cenvat Credit Rules, 2002. The rule created a legal fiction where duty paid vehicles were deemed inputs for the remaking process. The Tribunal clarified that the process undertaken by the appellants amounted to manufacture, as affirmed in their previous case.

The Tribunal disagreed with the lower authorities' apportionment of credit for salvaged and non-usable parts, stating there was no legal basis for such division. It emphasized that the dismantling and salvaging of damaged vehicles were integral to the manufacturing process of new vehicles, entitling the appellants to full credit for duty paid initially. The Tribunal rejected the Commissioner's assertion that only a portion of the credit was eligible, emphasizing that the damaged vehicles qualified for credit under Rule 16 (1) without any partial denial.

Additionally, the Tribunal upheld the appellants' argument regarding the time bar on the first show cause notice, noting that the issue had been long-standing and well-known to the Department, rendering the notice beyond the normal period and time-barred. Consequently, the Tribunal set aside the impugned orders, allowing the appeals and disposing of the linked stay applications.