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TMI Blog2019 (12) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise Service Tax Appellate Tribunal (CESTAT), Allahabad, in its order dated 03.04.2018 held that the assessee respondent is entitled to CENVAT credit and has lawfully taken and utilized CENVAT credit under Rule 16 of the Central Excise Rules, 2002. The Commissioner of Customs, Central Excise Service Tax, Ghaziabad, had in the Order-in- Original dated 21st October, 2010, found that the assessee had wrongly availed of the CENVAT credit under Rule 16(1) of the Central Excise Rules, 2002 and accordingly ordered recovery of evaded liability and imposed penalty. 4. The connected Central Excise Appeal No.88 of 2019 (Commissioner, Central Goods and Service Tax Commissionerate, Ghaziabad Versus R.K. Gupta) has also been filed against the said judgment and order of the learned Customs, Excise Service Tax Appellate Tribunal (CESTAT), Allahabad, dated 3rd April, 2018, in regard to reversal of the penalty imposed upon Sri R.K.Gupta under Rule 26 of the Central Excise Rules, 2002 by the Order-in-Original dated 21.10.2010. 5. The respondent assessee is engaged in the manufacture of various brands of cigarettes on job work basis for M/s Godfrey Philips India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11AC of the Central Excise Act, 1944. 11. The respondent assessee showed cause and tendered its defence before the noticing authority and contested the proceedings. 12. The assessing officer adjudicated the controversy by order dated 21.10.2010 wherein it found in favour of the Revenue and held that the assessee had wrongly claimed CENVAT credit under Rule 16(1) of the Central Excise Rules, 2002 and Sri R.K.Gupta, Deputy General Manager (IT Accounts) was liable to pay penalty under Rule 26 of the Central Excise Rules, 2002. 13. The assessing officer found that the assessee respondent had wrongly availed CENVAT credit, amounting to ₹ 6,83,28,039/- (Rupees six crores eighty three lakhs twenty eight thousand thirty nine only) under Rule 16 of the CENVAT Credit Rules, 2004. 14. A penalty to the tune of ₹ 6,83,28,039/- (Rupees six crores eighty three lakhs twenty eight thousand thirty nine only) was also imposed upon the respondent assessee. 15. A penalty of ₹ 5,00,000/- (Rupees five lakhs only) was imposed on Sri R.K.Gupta in the connected appeal under Rule 26 of the Central Excise Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cigarette packets, cigarette wrapper, filter almost every cenvatable material on which Cenvat credit had been availed by ITC are thrown away without payment of duty. It is only the tobacco of the returned cigarettes which is recovered (to the extent of around 80%) and the same is reused for the manufacture of fresh cigarettes. It has thus been alleged that all the inputs except tobacco are separated first and disposed off and then only the tobacco portion is used in manufacturing of fresh cigarettes. 6.5 From the above I find that cigarettes received back for refreshing are not put to use as inputs for the manufacture of finished goods. These are actually put to the process of separation of all inputs other than tobacco by method of scrapping and to my opinion, the said process cannot be treated as a manufacturing process. The returned cigarettes as such can also not be treated as inputs as the same cannot be put to use as inputs in the manufacture of cigarettes. I also feel that the use of retrieved tobacco by mixing with fresh tobacco is done by the party with the sole aim to avail credit on returned goods as the value of such tobacco is very low as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified under Rule 16 of the Central Excise Rules, 2002 alongwith the Forwarding Challan-cum-Invoice counter signed by the Officer of the Department. From the record, we find that the adjudicating authority while coming to the conclusion in para 6.2 has observed that: 6.2. The issue in the present proceedings before me is whether cigarettes received back from sale offices or from clearing and forwarding agents are eligible for credit of duty paid on them originally at the time of their clearance from the factory under the provisions of rule 16 of CER, 2002. I would like to analyze the provisions of this rule under which the impugned credit has been availed by the party. In terms of this rule, goods should be brought back for being re-made, refined re-conditioned or for any other reason and the assessee is entitled to take credit of duty paid if such goods are received as inputs under the Cenvat credit rules, 2002. I find that ITC, in their reply have given force on the words for any other reason . I find that the availment of Cenvat credit is primarily governed by CCR, 2002/2004 and thus the availment of Cenvat credit provided by any other rule like CER, 2002 canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntirety: Rule 16. Credit of duty on goods brought to the factory . (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, reconditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules. 20. Rule 16 states the procedure and eligibility to avail credit of duty on goods brought to the factory. Various ingredients of Rule 16(1) will now be discussed. 21. 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. 22. Once the above conditions are fulfilled, the assessee becomes entitled under Rule 16(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n , have to be in the likeness of the processes which immediately precede the aforesaid phrase. All the processes should have such similarities so as to be constituted into the same class. 28. The legislature has employed the words re-made , refined , re-conditioned and the phrase, or for any other reason and eschewed the phrase for being scrapped . Understanding this distinction is the key to interpreting the scope of re-made , refined , reconditioned and the phrase, or for any other reason . 29. The essential characteristics of the brought back goods survive even after they are re-made , refined or re-conditioned . The original identity of the goods is retained even after the goods undergo the said processes. 30. When goods are scrapped, all the constituent components of the goods may be reclaimed. After scrapping, the original identity of the manufactured goods completely perishes. Scrapping of goods is done for various purposes, including cannibalisation and extraction of vital or valuable parts of the original goods. 31. Re-made , refined and re-conditioned are processes akin to manufacture; while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing cigarettes were not even opened and found in packed condition. The alleged defects in goods, as claimed by the assessee, thus could not be ascertained without opening the cartons. The goods were actually sent back to the same purchasers in the self-same condition in which they were received. 38. The receipts were not found to be reliable. There are no records of the reasons given by the purchasers for rejecting the consignments of goods. On this foot, the reasons for bringing back the goods to the factory, as adduced by the assessee, were disbelieved. 39. The scrapping of the goods stood established by reliable evidence and cogent findings in the record. The assessee, in fact, scrapped the goods and tried to pass it as refining the goods. 40. 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. 41. In wake of the preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. 44. Accordingly, the substantial questions of law are answered against the assessee and in favour of the Revenue in the following terms:- I. The learned Customs, Excise Service Tax Appellate Tribunal (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. The learned Customs, Excise Service Tax Appellate Tribunal (CESTAT) also erred in law by finding that the respondent assessee had lawfully availed CENVAT credit in the offending transaction. II. The learned Customs, Excise Service Tax Appellate Tribunal (CESTAT) was completely unjustified in law by setting aside the penalty imposed upon R.K. Gupta, in connected Central Excise Appeal No.88 of 2019 (Commissioner, Central Goods and Service Tax Commissionerate, Ghaziabad Versus R.K. Gupta), even in the face of the fact that the ingredients of Rule 26 of the Central Excise Rules, 2002, were fully satisfied. R.K.Gupta, in law, was liable to pay the penalty imposed in the Order-in-Original passed by the Commissio ..... 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