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TMI Blog2023 (10) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... s. One such exception is that there is no bar on availment of CENVAT credit when the goods are exported under bond.In the instant case, the Department attempts to argue that the motor vehicles sent abroad by the appellants for testing are not suffering any duty; no export proceeds are realized and hence, CENVAT credit is not applicable - the contention of the Department has no legal basis. As per the provisions of CENVAT credit under CCR, 2004, there is no such bar on availment of CENVAT credit when the goods are exported. A conjoint reading of Rule 19 of CER and definition of final products would make it clear that the argument that the export goods are not final products is not acceptable. Further, there is nothing in Rule 19 to say that in case of breach of conditions of the bond, CENVAT credit attributable to the export goods shall be disallowed. The Department was within its right to take whatever action on the appellants for not adhering to the conditions of the bond. It is not on record whether any such action has been initiated by the Department - for the reason that export proceeds are not realized, CENVAT credit,which is otherwise admissible, cannot be denied. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingh, learned Counsel for the appellants, submits that the entire issue is settled in appellant s favour for the subsequent periods; this Bench vide Final Order No.61019/2017 dated 23.05.2017 dismissed the appeal filed by the Department holding that export of sample vehicles/ prototype for testing and analysis is part of the manufacturing activity and hence, CENVAT credit is available to the appellant. Learned Counsel submits that Rule 3 of the CENVAT Credit Rules, 2004 provides that a manufacturer of final product shall be entitled to avail the credit of specified duties in respect of inputs or capital goods received in the factory of the manufacturer for use in or in relation to manufacture of final products; it is not disputed that the appellant was engaged in the manufacture and sale of motor vehicles; before producing the vehicles on a mass basis, various tests and checks for safety and quality are conducted on the goods and during that testing etc., the goods are destroyed and disposed of; learned Counsel produces copy of a Destruction Certificate issued by M/s ABN Amro Bank. 3. Learned Counsel further submits that export of sample vehicles is integral part of the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export of prototypes; it s a moot point to see as to whether prototype can qualify to be excisable goods as per Section 2(d) of Central Excise Act, 1944; he submits that as per the definition, any goods should satisfy the twin conditions to be called as excisable goods; one the item should be specified under First or Second Schedule to the Central Excise Act, 1985 and the second is that the goods must be marketable i.e. they should be capable of being sold as such; as the prototypes exported by the appellants are not classifiable under First or Second Schedule to the Central Excise Act, 1985 and since the prototypes are not marketable, they do not qualify to be called goods; if any goods do not satisfy the definition under Section 2(d) of the Central Excise Act, 1944, the same do not qualify to be final products for the purpose of Rule 2(h) of the CENVAT Credit Rules, 2004. 7. Learned Authorized Representative further contends that the argument of the appellant, thatthe goods have been exported under Rule 19 of Central Excise Rules, 2002, will not support their case; in terms of Board s Circular No.354/70/97-CX dated 13.11.1997, in case, the transference copy or bank realizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises of provider of output service. . 2(a) The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service 4[or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory] at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year. 9.2. Rule 6 of CCR, 2004 lays down the obligations of a manufacturer for availing CENVAT credit. Rule 6. 1[Obligation of a manufacturer or producer of final products and a provider of taxable service.] (1) The CENVAT credit shall not be allowed on such quantity of 2[input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacturer of exempted goods and their clearance up to the place of removal or for provision of exempted service] except in the circumstances mentioned in sub-rule (2). 9.3. One of the exceptions given for Rule 6 is under sub- Rule 6 where it is laid down that the provisions of sub-rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents want to do is in fact to levy 10% on the sale price of the printed books in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004. In our opinion this is wholly impermissible. The provisions as now contained in Rule 6 of the Credit Rules, 2004 were contained in Rules 57C and 57CC of the Central Excise Rules, 1944 as they stood prior to 1st April, 2000. From 1st April, 2000 till 30th June, 2001 similar provisions were contained in Rule 57AD of the Central Excise Rules, 1944. In the context of these Rules circular dated 8th November, 2001 of the Ministry of Finance was issued. It dealt with the question whether 8% has to be paid on the sale price of exempted goods. Under Rule 6(3)(v) of Cenvat Credit Rules, 2004, to 8% has been increased to 10%. The relevant portion of the Circular dated 8th November, 2001 reads as under :- Further, it is now clearly and specifically mentioned in Rule 57AD(4) that the provisions relating to non-availability of Modvat credit and reversal @ 8% is not applicable in case the exempted goods are cleared for export under bond in terms of the provisions of Rule 13 . In the new rule 57AD, it has been explicitly provided what was implicity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument, that the motor vehicles exported by the appellants are not final products, the argument will not help the case of the Department for the following reasons: (i) In terms of Rule 2(h) of CCR, 2004 final products means excisable goods manufactured or produced from input or using input service. In terms of Rule 2(k) Input means all goods used in the factory by the manufacturer of the final products. In view of the definition of the Input , the nature of input is not altered even if it is accepted, for the sake of argument, that the motor vehicles exported by the appellant were not final products , since the very definition includes all goods used in the factory by the manufacturer of the final products. The definition does not prescribe that the inputs should necessarily be contained in the final product. The only incontrovertible conclusion that flows is that as long as the status of the appellant is that of a manufacture of the final products, credit cannot be denied just because some motor vehicles, conveniently called prototypes by the Department, are exported without payment of duty under bond and are further destroyed in the process and sale proceeds also are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port goods shall be disallowed. The Department was within its right to take whatever action on the appellants for not adhering to the conditions of the bond. It is not on record whether any such action has been initiated by the Department. We are of the considered opinion that for the reason that export proceeds are not realized, CENVAT credit,which is otherwise admissible as per the discussion above, cannot be denied. 12. The appellants have claimed that testing of motor vehicles to ensure that they have all the safety mechanisms properly working in all road conditions are integral to the manufacturing of motor vehicles. Therefore, it was incumbent upon the appellants to get the vehicles tested. We find that there is force in the argument of the appellants. It has been held in a number of cases that testing is integral to the act of manufacture and that CENVAT Credit cannot be denied on account of the fact that the samples are destroyed during the course of testing or as a result of testing. We find that Hon ble Supreme Court in the case of Flex Engineering Ltd. (supra) held that: 17. It is trite to state that manufacture takes place when the raw materials undergo a serie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The fact that the goods are not in fact marketed is of no relevance. 9. It may be noticed that in the cases referred to in the passage, quoted above, the reasons for holding the articles not marketable are different, however, they are not exhaustive. It is difficult to lay down a precise test to determine marketability of articles. Marketability of goods has certain attributes. The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold. The fact that the product in question is generally not being bought and sold or has no demand in the market would be irrelevant. The plastic body of EMR does not satisfy the aforementioned criteria. There are some competing manufacturers of EMR. Each is having a different plastic body to suit its design and requirement. If one goes to the market to purchase the plastic body of EMR of the respondents either for replacement or otherwise one cannot get it in the market because at present it is not a commercially known product. For these reasons, the plastic body, which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is tailor made according to the requirements of individual customers. If the results are not in conformity with the order, then the machine loses its marketability and is of no use to any other customer. Thus, the process of manufacture will not be said to be complete till the time the machines meet the contractual specifications and that will not be possible unless the machines are subjected to individual testing. Even though the revenue has alleged that the process of manufacture is complete as soon as the machine is assembled, yet it has not discharged the onus of proving the marketability of the machines thus assembled, prior to the stage of testing. Moreover, as has been held in the case of Hindustan Zinc Ltd. v. Commissioner of Central Excise, Jaipur, (2005) 2 SCC 662 = 2005 (181) E.L.T. 170 (S.C.), the burden of proving whether a particular product is marketable or not is on the department and in the absence of such proof it cannot be presumed to be marketable. In the absence of the revenue having adduced any such evidence or contorted the assessee s claim that the machines cannot be sold unless testing is done with some alternative evidence as to their marketability, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgy and for tele-communication purposes. There is a specific requirement in the contracts that before the goods could be considered as fit for delivery, they had to pass the prescribed quality control test. For this purpose, about one per cent of the poles were selected at random and they were subjected to various specified tests till they broke in the testing process. The goods were despatched to the Electricity Board only after the samples had passed the prescribed tests. In the circumstances, it has to be held that the goods became marketable and fit for delivery only after they had passed the prescribed quality control tests, and not before. Unless the goods reach a stage where they are fit for delivery, they cannot be considered as fully manufactured goods. The quality control test was a mandatory requirement before the goods produced could be considered as fully manufactured. We agree with the learned Collector (Appeals) that no Central Excise duty was payable on the Cement Concrete Poles which got destroyed in the course of mandatory quality control tests which were a part of the production process of the poles. 15. We also find that this Bench vides Final Order No.61019/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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