2019 (4) TMI 1328 - AT - Central Excise

CENVAT Credit - input - inputs received in wooden containers and/or pallets - whether the pallets, being the packing materials of the said finished goods were treated as inputs in the manufacture of the said goods - HELD THAT - The pallets which were purchased by the Appellant @40/- per Kg. Were sold @Rs. 11/- per kg. under the description Scrap Wood/broken Pallet . There was no allegation that the price charged was not the transaction value and that the such sale was undervalued. Nor was there any allegation that the sales were made to related persons.This price difference weighs heavily against the allegation by the department that the pallets were removed as such. The Appellant has claimed that they had included the value of pallets in the value of finished, for the purpose of paying excise duty, even when such finished goods were packed with recycled/returned pallets on which no CENVAT credit was availed by them. Central Excise Rules provides for imposition of duty on the waste arising out of the manufacturing process, but the packaging materials cannot be termed as waste arising out of manufacturing process. Hence, it may be concluded that no duty is payable when unusable or redundant packaging materials are removed from the factory, nor reversal of CENVAT credit is warranted. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Allegation of removal of 'convertible input' pallets without payment of Cenvat credit.
2. Disallowance and confirmation of demand of Cenvat credit along with interest and imposition of penalty.
3. Interpretation of Circular No. 721/37/2003-CX and its applicability.
4. Treatment of returned recycled pallets and their impact on Cenvat credit.
5. Judicial scrutiny of duty payable on packaging materials and waste arising out of manufacturing process.

Analysis:

1. The respondent assessee, engaged in manufacturing various products, purchased raw materials received in wooden containers and pallets. After using the materials, the emptied containers and pallets were sold as scrap. Allegations were made regarding the removal of 'convertible input' pallets without paying the equivalent Cenvat credit.

2. Two Show Cause Notices were issued, disallowing Cenvat credit, confirming the demand along with interest, and imposing a penalty. The Adjudicating Authority upheld the disallowance. On appeal, the Learned Commissioner (Appeals) allowed the appeal, leading to the Department filing an appeal before the Tribunal.

3. The respondent's advocate argued that no credit reversal was needed for scrap generated from packing materials, citing Circular No. 721/37/2003-CX. The advocate emphasized the distinction between purchased pallets used as inputs and returned recycled pallets, asserting no duty reversal was required for the latter.

4. The Tribunal noted the absence of evidence supporting the allegation of removing pallets without payment. The appeal records indicated the inclusion of pallet values in the finished goods, justifying no duty payment for recycled pallets. Citing Circulars and judicial precedents, the Tribunal concluded that no duty was payable on packaging materials removed as waste.

5. Referring to Circulars and court judgments, the Tribunal highlighted that packaging materials like pallets were not considered waste arising from the manufacturing process. It was concluded that no duty was payable on unusable packaging materials removed from the factory, and no reversal of Cenvat credit was warranted, aligning with the guidelines provided in Circular No. 721/37/2003-CX.

This detailed analysis of the judgment addresses the issues involved comprehensively, covering the legal interpretations, arguments presented, and the Tribunal's final decision based on the facts and applicable laws.