2018 (5) TMI 201 - AT - Central Excise

CENVAT credit - inputs - certain inputs were rejected/ spoiled by the job worker and certain inputs were not received back by the appellant from the job worker - Where is the facts and circumstances of the case, the Cenvat credit of ₹ 6,00,613/- is required to be reversed by the appellant on the inputs rejected/spoiled at the job worker s premises received back by the appellant in the absence of the proof of payment of duty on scrap or not? - difference of opinion - majority order - Held that - there is no dispute that input were issued for manufacture and during manufacture they were either rejected or spoilt and then returned back to the manufacturer by the job worker - the requirement of para 3.7 of Supplementary Instructions are satisfied in respect of subject inputs and therefore I hold that there is no need for reversal of Cenvat credit of ₹ 6,00,613/- in the facts and circumstances of the present case - credit allowed. In view of the majority decision, the appeal is allowed.

Issues Involved:

1. Whether the cenvat credit of ?6,00,613/- can be denied on inputs rejected/spoiled at the job worker's premises received back by the appellant.
2. Whether the cenvat credit of ?67,16,069/- can be denied on inputs short received due to waste/scrap generated at the job worker's end.

Issue No. 1: Cenvat credit of ?6,00,613/- denied on inputs rejected/spoiled at the job worker's premises received back by the appellant

The appellant argued that the inputs, which were later found to be rejects/spoiled, were sent for manufacturing to the job worker and used in the manufacturing process. Therefore, as per Rule 4(3) of the Cenvat Credit Rules (CCR), 2004, they are entitled to avail cenvat credit. The appellant cited the decision of the Hon'ble Delhi High Court in Asahi India Safety Glass Limited vs. Union of India, which states that credit is to be allowed on inputs used in the final product, even if they are later found defective and rejected.

The Revenue countered that the appellant did not take permission as per Rule 4(6) of the CCR, 2004, and showed high wastage on rejects, thus not entitled to cenvat credit.

The Tribunal found that the appellant is entitled to cenvat credit on ?6,00,613/- for inputs rejected/spoiled and received back, as the inputs were used in the manufacturing process. This aligns with the decision in Asahi India Safety Glass Limited, which emphasizes that credit should not be denied if inputs become waste during the manufacturing process.

However, a separate opinion by another member held that the appellant did not provide evidence of payment of duty on the rejected raw material, which was thrown in the scrap yard. The appellant was required to reverse the credit in the absence of such proof. The member upheld the Commissioner’s finding that the appellant is not entitled to cenvat credit on the rejected/spoiled inputs.

Upon difference of opinion, the third member agreed with the original decision, stating that the inputs were used in the manufacturing process and therefore, cenvat credit should not be reversed.

Issue No. 2: Cenvat credit of ?67,16,069/- denied on inputs on account of generation of waste/scrap at the job worker's end

The appellant contended that the waste/scrap generated at the job worker's end was cleared on payment of duty, and thus, cenvat credit cannot be denied. They cited various decisions, including Mahindra Hinoday Industries Ltd., which support that cenvat credit is admissible on inputs contained in waste/scrap generated during manufacturing.

The Tribunal noted that there was no allegation in the show cause notice that the appellant did not comply with Rule 4(6) of the CCR, 2004. The CBEC Circular F.NO. B-4/7/2000-TRU clarified that cenvat credit is admissible on inputs contained in waste/scrap. The High Court of Allahabad in Balrampur Chini Mills Ltd. vs. Union of India also held that waste products are not manufactured goods.

The Tribunal concluded that the appellant is entitled to cenvat credit on ?67,16,069/- for inputs used in waste/scrap generated at the job worker's end, as the issue has been settled by various decisions and the CBEC circular.

Majority Order:

In view of the majority decision, the appeal is allowed, and the appellant is entitled to avail the cenvat credit for both the amounts in question. The impugned order is set aside, and the appeal is allowed with consequential relief, if any.

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