2018 (11) TMI 611 - AT - Central Excise

CENVAT credit of goods brought back in the factory - stock of cigarettes - applicability of Rule 16 of the Central Excise Rules, 2002 - Held that - Rule 16 is wide enough to cover the case of the Appellants in view of the wordings used in it which inter alia includes any other reason for receiving the duty paid goods. The duty paid character of the goods, being not disputed in the present case, Rule 16 is squarely applicable and accordingly the Appellants have rightly taken the CENVAT Credit and utilized the same - appeal allowed - decided in favor of appellant.

Summary

Issues: Interpretation of Rule 16 of the Central Excise Rules, 2002 regarding the eligibility of CENVAT credit on returned goods for refreshing of cigarettes.

Analysis:
1. The appeals were filed against the Order-in-Original dated 21.10.2010 passed by the Commissioner of Customs, Central Excise & Service Tax, Ghaziabad for the period November 2006 to May 2007 and August 2008 to April 2009. The Appellants, engaged in manufacturing cigarettes for M/s Godfrey Phillips India Limited on job work basis, availed CENVAT Credit on inputs. The dispute arose when cigarettes cleared by the Appellants were returned by Godfrey Phillips India Limited for refreshing, and the Department issued show cause notices challenging the CENVAT Credit taken by the Appellants under Rule 16 of the Central Excise Rules, 2002.

2. The Appellants argued that the impugned order misinterpreted Rule 16, emphasizing that the Rule enacts a legal fiction treating returned goods as 'inputs'. They contended that Rule 16 is broad in scope, covering refreshing of cigarettes under the term 'for any other reason'. The Appellants sought to set aside the impugned order based on this interpretation.

3. The Revenue, represented by the DR, supported the findings of the impugned order, leading to a dispute over the correct application of Rule 16 in the context of CENVAT Credit for returned goods. The Tribunal examined Rule 16, which allows CENVAT Credit on goods brought back to the factory for various reasons, treating them as inputs under the CENVAT Credit Rules, 2002. The Tribunal noted that the returned cigarettes met the conditions specified under Rule 16, being brought back to the factory with the necessary documentation.

4. The Tribunal highlighted that Rule 16 creates a legal fiction, enabling the Appellants to claim CENVAT Credit on the returned goods for refreshing cigarettes. The adjudicating authority's interpretation, focusing on goods as 'inputs as such' rather than 'inputs as if', was deemed incorrect. The Tribunal concluded that the Appellants rightfully availed and utilized the CENVAT Credit under Rule 16.

5. Consequently, the Tribunal set aside the impugned order, allowing the appeals filed by the Appellants. Additionally, the penalty imposed on the Deputy General Manager of the Appellants was also overturned under Rule 26 of the Central Excise Rules, 2002. The Tribunal's decision was based on the correct interpretation of Rule 16, affirming the Appellants' eligibility for CENVAT Credit on returned goods used for refreshing cigarettes.