2016 (1) TMI 263 - AT - Central Excise

CENVAT Credit of Free supply - MRP based valuation - manufacture of razor and razor blades - inclusion of duty free blades and availing Cenvat Credit - Held that - There is no dispute regarding valuation of final products cleared. There is no allegation of short payment of duty on account of non-inclusion of free supplied blades in the valuation of final products viz. razor blade combo packed together. Still, the department went ahead and denied the credit on the blades under the provisions of Rule 6(1) of the Cenvat Credit Rules, 2004. It is clear that Rule 6(1) will apply in respect of the inputs used in or in relation to the manufacture of exempted goods. Now, it would appear that the department equated the supposed free blades with exempted goods. Otherwise, Rule 6(1) has no relevance. Calling a free supplied good as exempted goods is legally unsustainable - there is no under-valuation or short payment of duty on the final products cleared, which includes the free supplied blades. Equating such free supply to exempted clearance is untenable as already explained. As such, the provisions of Rule 6 of the Cenvat Credit Rules, 2004 has no application here. - Impugned order is unsustainable - Decided in favour of assessee.

Summary

Issues:
- Denial of cenvat credit on blades cleared free of duty.
- Applicability of Rule 6 of the Cenvat Credit Rules, 2004.
- Interpretation of free supply of blades as exempted goods.
- Relevance of MRP based valuation under Section 4 A.
- Decision based on previous Tribunal and High Court rulings.

Analysis:
1. The appeal concerns the denial of cenvat credit on blades cleared free of duty. The appellants, engaged in manufacturing razors, assembled components supplied by M/s. Gillete India Ltd. and packed them for sale. The Department alleged denial of credit on blades supplied free with razors. The Tribunal previously remanded a similar case for fresh decision by the Commissioner (Appeals).

2. The appellants argued that the free supply of blades with razors was a marketing strategy and not exempted goods. They referenced Tribunal decisions and the Gujarat High Court ruling in Prime Health Care Products to support their case. The Department relied on the earlier Tribunal decision in G.S. Industries.

3. After hearing both sides, the Tribunal found no dispute on the valuation of final products. The Department denied credit under Rule 6(1) of the Cenvat Credit Rules, 2004, equating free blades to exempted goods. However, the Tribunal deemed this interpretation legally unsustainable, as there was no under-valuation or duty short payment on the final products.

4. The Tribunal, following the precedent set in G.S. Industries and Prime Health Care Products, concluded that cenvat credit on excise duty paid on blades cannot be disallowed. Therefore, the impugned order denying the credit was set aside, allowing the appeal with any consequential relief.

In conclusion, the Tribunal's decision clarified the incorrect application of Rule 6 in denying cenvat credit on blades supplied free with razors. The ruling emphasized the distinction between free supply and exempted goods, ensuring compliance with the Cenvat Credit Rules.