2018 (6) TMI 627 - AT - Central Excise

Reversal of CENVAT credit - inputs sent for job-work - it was alleged that the appellant had not reversed credit availed on inputs when the inputs were sent for job work and thus violated Rule 3(5) of CENVAT Credit Rules, 2004 - Held that - There is no dispute that the inputs supplied to job worker for manufacture of wooden crates which were used for packing of finished products by the appellant. The removal of goods for job work credit of the duty paid cannot be considered as removal of inputs as such as it envisaged in Rule 3(5) of CENVAT Credit Rules, 2004. The said rule requires for reversal of credit when inputs are removed as such, while Rule 4(5)(a) contemplates the situation when goods are removed and returned. Even if the appellant had reversed the credit, they would be able to take credit of the duty paid when the job worked goods / finished crates are returned by the job worker as these are cleared on payment of duty - Taking note of this fact and also the situation being a revenue neutral one, the demand cannot sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Violation of Rule 3(5) of CENVAT Credit Rules, 2004 by not reversing credit availed on inputs sent for job work; Applicability of Rule 4(5)(a) of CENVAT Credit Rules, 2004; Invocation of extended period for demand; Revenue neutrality of the situation; Procedural errors in the case.

Analysis:
The judgment revolves around the issue of alleged violation of Rule 3(5) of CENVAT Credit Rules, 2004 by the appellant for not reversing the credit availed on inputs sent for job work. The appellant contended that the goods were sent to job workers under returnable gate passes as per Rule 4(5)(a) of the Rules, which does not necessitate maintaining detailed records. The appellant argued that the removal of inputs for job work does not fall under the category of "removal of inputs 'as such'" as per Rule 3(5). The Tribunal referred to the case of Southern Lubrication (P) Ltd. and other judgments to support the argument that a revenue-neutral situation would arise if the appellant had reversed the credit, as the finished crates were cleared on payment of duty.

The appellant further raised the issue of the invocation of the extended period for demand by the department. The appellant's counsel argued that since the goods were removed under returnable gate passes and the credit availed was reflected in the returns, there was no evidence of suppression of facts by the appellant. The counsel emphasized that the situation was revenue-neutral, and hence, the extended period could not be justified.

The Tribunal analyzed the procedural errors in the case and concluded that the demand could not be sustained. It was held that even if the appellant had reversed the credit, they would be eligible to take credit of the duty paid when the job worked goods were returned by the job worker, as they were cleared on payment of duty. The Tribunal emphasized that the appellant should not be penalized for procedural lapses, citing the case of Mangalore Chemicals and Fertilizers Vs. Deputy Commissioner. Therefore, the impugned order was set aside, and the appeal was allowed with consequential relief, if any.

In summary, the judgment delves into the intricacies of CENVAT Credit Rules, 2004, focusing on the specific provisions related to the reversal of credit on inputs sent for job work. It clarifies the distinction between the rules governing the removal of inputs 'as such' and the removal and return of goods under Rule 4(5)(a). The Tribunal emphasized the concept of revenue neutrality and procedural compliance while ruling in favor of the appellant due to the absence of revenue implications and failure to establish any violation involving revenue.