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2019 (12) TMI 336 - HC - Central ExciseAvailment and utilization of CENVAT credit - returned goods - Rule 16(1) of the Central Excise Rules, 2002 - manufacture of various brands of cigarettes on job work basis - certain goods were returned by Godfrey Philips India Limited for various reasons - period November, 2006 to May, 2007 - period August, 2008 to April, 2009 - inclusion of scrapping within the scope of Rule 16(1) of the Central Excise Rules, 2002 - sum and substance of the case of the Revenue against the respondent assessee was that the respondent assessee engineered the return of the so-called non marketable/non saleable cigarettes, with the intent to unlawfully avail the benefits of CENVAT credit under Rule 16 (1) of the CENVAT Credit Rules, by misleading the Revenue - imposition of penalty u/r 26 of CER. HELD THAT - Rule 16(1) is applicable to goods on which duty had been paid at the time of removal of such goods and the same are brought back to the factory. The goods are brought back to the factory for being re-made, refined, re-conditioned or for any other reason . The assessee is also required to state the particulars of such receipt of goods in his records - Once the above conditions are fulfilled, the assessee becomes entitled under Rule 16(1) to take CENVAT credit of the duty paid on the returned goods as if such goods are received as inputs under the CENVAT Credit Rules, 2002. The credit shall be utilised by the assessee according to the latter Rules. It is evident that the learned Appellate Tribunal has incorrectly interpreted the scope of Rule 16(1) by bringing scrapping within the embrace of Rule 16(1) and has proceeded to legitimise the benefit of CENVAT availed by the respondent assessee - The findings of facts returned by the Assessing Officer thus attain finality since they were not successfully impeached by the learned Appellate Tribunal. These findings extracted in extenso in the earlier part of the judgment are set forth, in brief, hereinafter to take the discussion forward and to its logical conclusion. Clearly, the goods were not brought back to the factory by the assessee to be re-made , refined , reconditioned , or for any other reason as contemplated in Rule 16(1) of the Central Excise Rules, 2002. The transactions were devices to illegally avail CENVAT credit. The intent to illegal avail CENVAT credit and escape duty was fully established - the ingredients to avail credit of duty of goods brought back to the factory, as contemplated under Rule 16(1) of the Central Excise Rules, 2002, were not satisfied. The assessee was not entitled to avail the benefit of CENVAT credit of the duty paid on the aforesaid goods and illegally availed such credit. The intent of the assessee to defraud the revenue and escape tax is thus proved. Penalty u/r 26 of CER - HELD THAT - The ingredients of Rule 26 for imposing the penalty upon Sri R.K.Gupta, Deputy General Manager (IT Accounts), are fully satisfied. The provisions of the Rule 26 have been duly adhered to - The order imposing penalty against Sri R.K.Gupta under Rule 26, is a lawful and just order, in the facts and circumstances of this case. Thus, CESTAT was clearly misdirected in law in its interpretation of Rule 16(1) of the Central Excise Rules, 2002 by unlawfully including scrapping within the scope of Rule 16(1) of the Central Excise Rules, 2002 - CESTAT also erred in law by finding that the respondent assessee had lawfully availed CENVAT credit in the offending transaction - penalty on R.K. Gupta upheld. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Interpretation of Rule 16(1) of the Central Excise Rules, 2002. 2. Legitimacy of CENVAT credit availed by the respondent-assessee. 3. Justification of penalty imposed on R.K. Gupta under Rule 26 of the Central Excise Rules, 2002. Detailed Analysis: Interpretation of Rule 16(1) of the Central Excise Rules, 2002: The primary issue revolves around the interpretation of Rule 16(1) of the Central Excise Rules, 2002, which allows for CENVAT credit on goods brought back to the factory for being "re-made, refined, re-conditioned or for any other reason." The court emphasized that the phrase "or for any other reason" should be interpreted using the ejusdem generis rule, meaning it should be read in the context of the preceding terms "re-made," "refined," and "re-conditioned." The court held that scrapping does not fall within the ambit of these terms as it involves the destruction of the original identity of the goods, unlike the processes mentioned which retain the essential characteristics of the goods. Legitimacy of CENVAT Credit: The court found that the learned Customs, Excise & Service Tax Appellate Tribunal (CESTAT) had misinterpreted Rule 16(1) by including scrapping within its scope. The court observed that the goods were not brought back to the factory for any of the processes mentioned in Rule 16(1), but were scrapped, which does not qualify for CENVAT credit. The court concluded that the respondent-assessee had unlawfully availed CENVAT credit by misrepresenting the nature of the returned goods and their subsequent processing. The original findings of the assessing officer, which stated that the goods were scrapped and not used as inputs for manufacturing, were upheld. Justification of Penalty on R.K. Gupta: The court examined the imposition of penalty on R.K. Gupta under Rule 26 of the Central Excise Rules, 2002. Rule 26 penalizes individuals involved in activities such as concealing, selling, or dealing with excisable goods liable for confiscation. The court found that the ingredients of Rule 26 were fully satisfied in this case, as R.K. Gupta was responsible for the day-to-day excise matters and was involved in the wrongful availment of CENVAT credit. Consequently, the court held that the penalty imposed on R.K. Gupta by the Commissioner of Customs, Central Excise & Service Tax, Ghaziabad, was lawful and justified. Conclusion: The court answered the substantial questions of law against the respondent-assessee and in favor of the Revenue. It held that the CESTAT had erred in its interpretation of Rule 16(1) and in setting aside the penalty on R.K. Gupta. The judgment of the CESTAT dated 3rd April, 2018, was set aside, and the order of the Commissioner of Customs, Central Excise & Service Tax, Ghaziabad, dated 21st October, 2010, was upheld. Both appeals were allowed.
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