2018 (10) TMI 1322 - AT - Central Excise

Procurement of inputs from a DTA unit under CT-3 procedure which was later returned back to the original supplier, on being found unfit for consumption - case of the department is that once the non duty paid under CT-3 received by the 100% EOU there is no other option accepted either to use in the production or to discharge the Excise duty accordingly on the returned goods demand was confirmed. Held that - In the transaction as per Rules, 6 provision thereof there is a clear proviso that in case the assessee found the goods to be defective or damage of un suitable or surplice to the needs of the manufacture. He may return the subject goods to the original manufacturer of the goods. According to this provision duty cannot be demanded from the appellant. As per the provision of Rules, 6 of Central Excise Confessional duty Rules, 2001, the demand of interest and penalty is not sustainable - appeal allowed - decided in favor of appellant

Summary

Issues:
1. Whether duty can be demanded on goods returned by a 100% EOU procured under CT-3 procedure?
2. Whether interest on duty can be demanded in such cases?

Analysis:

Issue 1:
The case involved the appellant procuring inputs from a DTA unit under CT-3 procedure, which were later found unfit for consumption and returned to the original supplier. The department contended that duty must be discharged on goods received under CT-3, whether used in production or returned. The Ld. Commissioner (Appeals) upheld the demand and interest on duty. However, the appellant argued that duty can only be demanded if the goods are diverted or sold in the DTA, citing Notification No. 22/2003-CE and Central Excise Rules. The Tribunal noted Rule 6, which allows returning defective or surplus goods to the original manufacturer without duty liability. Relying on a similar precedent, the Tribunal held that duty cannot be demanded in such cases, setting aside the demand and allowing the appeal.

Issue 2:
Regarding the demand for interest on duty, the Tribunal found that as per the provisions of Central Excise Concessional Duty Rules, 2001 and the precedent cited, the demand for interest and penalty was not sustainable. Therefore, the Tribunal set aside the demand for interest and penalty, ultimately allowing the appeal of the appellant.

In conclusion, the judgment clarified that duty cannot be demanded on goods returned by a 100% EOU procured under CT-3 procedure if found defective or surplus, as per the relevant provisions and established legal precedents. Additionally, the Tribunal ruled that the demand for interest and penalty in such cases was not valid, leading to the appeal being allowed.