2019 (3) TMI 936 - AT - Central Excise

CENVAT Credit - bought out drums which were cleared on payment of duty, after carrying out the process of coating and painting - denial of credit on the ground hat the activity do not amount to manufacture - Held that - The appellant have availed credit on bought out drums and at the time of clearance, after the activity of coating and painting, cleared the same on payment of duty. This is permissible under Rule 16 of Central Excise Rules, 2002 - credit on bought out drums is allowed. Demand of duty - third party inspection charges, wherein the inspection/ certification was done on the request of the buyers - Held that - These inspection charges is only in those cases where buyers had made a request for such inspection/ testing. Otherwise, in other clearances, neither any testing was done nor such inspection/ testing charges were recovered from the buyers - since the inspection/ testing was carried out by the third party on the request of buyer, the charges of the same shall not be included in the assessable value - reliance placed in the case of COMMISSIONER OF C. EX., AHMEDABAD-II VERSUS LUBI SUBMERSIBLES LTD. 2015 (10) TMI 35 - CESTAT AHMEDABAD , where it is held that for the inspection/ testing charges, done at the request of the parties, should not be included in the assessable value - demand set aside. Penalty - Held that - Penalty on Director set aside - As regards the penalty imposed on the appellant, as the penalty was imposed under Section 11AC and admittedly the samples cleared were liable to duty and the appellant have knowingly cleared the drums without payment of duty, therefore, penalty corresponding to demand of ₹ 7,563/- is maintainable. Appeal allowed in part.

Summary

Issues involved:
1. Denial of Cenvat credit on bought out drums after coating and painting.
2. Demand of duty on third-party inspection charges.

Analysis:
1. Denial of Cenvat credit on bought out drums:
The appellant argued that although the activity of coating and painting the drums may not amount to manufacturing, they cleared the goods after paying duty, making the Cenvat credit admissible. Citing relevant judgments, the appellant contended that once duty is paid, Cenvat credit cannot be denied. The Tribunal agreed, noting that Rule 16 of Central Excise Rules, 2002 permits availing credit on bought out drums and clearing them after coating and painting. Therefore, the denial of Cenvat credit on bought out drums was held inadmissible.

2. Demand of duty on third-party inspection charges:
Regarding the demand on inspection charges, it was clarified that such charges were incurred only when buyers requested inspection for their purposes. In cases where no inspection was conducted or charges were not recovered from buyers, no duty was demanded. Citing precedent judgments, the Tribunal ruled that inspection charges by third parties, at the request of buyers, should not be included in the assessable value. Consequently, the demand on inspection charges was set aside.

3. Demand on removal of drums as samples and penalty on Director:
The appellant did not contest the demand of &8377; 7,563 for the removal of drums as samples, which was upheld. However, the penalty on the Director was set aside due to the absence of malafide intention and the involvement of an issue of law interpretation.

4. Penalty on the appellant:
The penalty imposed on the appellant under Section 11AC was deemed maintainable as the samples cleared were dutiable, and the appellant knowingly cleared the drums without paying duty. Thus, the penalty corresponding to the demand of &8377; 7,563 was upheld.

In conclusion, the Tribunal partially allowed the appeal of the Company and fully allowed the Director's appeal, based on the detailed analysis and findings on each issue presented before the Appellate Tribunal CESTAT AHMEDABAD.