2018 (5) TMI 546 - AT - Central Excise

CENVAT credit - scrap - case of Revenue is that scrap is not an input for the manufacture of final product and no manufacturing process was carried out on the scrap received by the appellant and therefore, the CENVAT credit taken on the scrap is not permissible - Held that - in the present case it is a fact that the iron and steel was directly supplied to the job worker who availed credit and processed and made semi-finished stampings and some scrap was generated in the process, which was cleared to the appellant on payment of duty and thereafter, the appellant also cleared the scrap on payment of duty which is higher than the one he claimed as CENVAT credit. It is also a fact that the appellant has paid higher duty as scrap than he claimed as CENVAT credit. Further, the entire transaction, in the present case, is revenue neutral as the duty has been paid on removal of scrap on which the credit was availed. In the case of PSL Holdings Ltd. vs. CCE 2003 (7) TMI 117 - CESTAT, MUMBAI , it was held by the Tribunal that utilisation of credit for payment of duty which was not required to be paid, credit was effectively reversed and the Revenue cannot once again ask for reversal of credit - In the present case also, the appellant has availed CENVAT credit on scrap received from the job workers based on the duty paid document and while at the time of clearance of the same, the appellant paid duty at the time of clearance which can be treated as reversal. CENVAT credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against rejection of CENVAT credit - Scrap generated during manufacturing process - Duty paid on scrap - Revenue neutrality - Compliance with CENVAT Credit Rules - Interpretation of Rule 16 - Eligibility of credit on scrap - Extended period of limitation - Definition of 'input service'.

Analysis:
The judgment involves multiple appeals related to the rejection of CENVAT credit on scrap generated during the manufacturing process. The appellant, engaged in manufacturing alternators, sent iron and steel to job workers who processed the goods, resulting in the generation of scrap. The Department objected to the appellant availing CENVAT credit on the scrap, citing lack of supporting documents and violation of CENVAT Credit Rules. A show-cause notice was issued, proposing to demand irregular CENVAT credit along with interest and penalty. The original authority upheld the demand, concluding that the scrap was not an input for the final product, despite the appellant accounting for and paying duty on the scrap. The Commissioner (A) rejected the appeal.

The appellant argued that the demand was based on assumptions, beyond the show-cause notice's scope, and the transaction was revenue neutral as duty was paid on the cleared scrap. The appellant contended that the scrap was iron and steel, eligible for credit as inputs, and duty was paid on scrap removal. Additionally, Rule 16 allowed credit on duty-paid goods remade within the factory. The appellant cited precedents supporting their position.

The Department defended the rejection, claiming non-compliance with Rule 16, lack of proof of scrap use in final product manufacturing, and scrap not falling under 'input service' definition. After considering both parties' submissions and relevant decisions, the Tribunal found the transaction to be revenue neutral, as duty was paid on the cleared scrap, effectively reversing the credit. The Tribunal referenced precedents where demanding reversal of credit on technical grounds was deemed untenable.

In the department's appeals, the Commissioner (A) allowed the appellant's appeals, reasoning that the denial of CENVAT credit on scrap was unsustainable. The Tribunal upheld the Commissioner's decision, setting aside the denial of credit on scrap and dismissing the Revenue's appeals. The judgment emphasized compliance with Rule 16, revenue neutrality, and the eligibility of credit on duty-paid scrap.