Credit admissibility on re-making of defected goods and clearance thereof on payment of duty.

PJ/CASE-LAW/2015-16/2760

Case:- HOTLINE CPT LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:-2015 (318) E.L.T. 141 (Tri. - Del.)

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Brief facts:-The appellant manufactures Colour Picture Tubes (CPT) in their factory at Malanpur Distt. They availed CENVAT credit of duty paid on inputs used in or in relation to the manufacture of picture tubes. The said Colour Picture Tubes (CPT) are cleared on payment of duty and in cases where the defective CPT are received back from customers, the same are received under Rule 16 of the Central Excise Rules, 2002. In respect of defective CPTs returned to the factory under Rule 16, the appellant availed CENVAT credit of the duty earlier paid on them. According to the appellant, these tubes are dismantled, the usable parts are salvaged and thereafter using fresh parts, CPTs are made, which are cleared on payment of duty. There is no dispute that the appellant re-manufactured/re-made the tubes which are cleared on payment of appropriate duty. The department was of the view that since in the re-making of the CPTs some Cenvat credit availed parts/inputs are used and since re-making does not amount to manufacture, they would not be entitled to CENVAT credit in respect of the fresh parts used for re-making of the CPTs. On this basis, a show cause notice dated 7-1-2009 was issued to the appellant seeking recovery of allegedly wrongly taken CENVAT credit amounting to Rs. 4,05,652/- during 2004-2005 to 2006-2007 period along with interest and also for imposition of penalty on the appellant under Section 15(2) of the Central Excise Act read with Section 11AC of the Central Excise Act, 1944. The show cause notice was adjudicated by the Asstt. Commissioner vide order-in-original dated 30-3-2010 by which the entire CENVAT credit demand was confirmed invoking extended period under proviso to Section 11A (l) of the Central Excise Act along with interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act and besides this, penalty of equal amount was imposed on the appellant under Rule 15(2) read with Section 11AC of the Central Excise Act, 1944. On appeal to the Commissioner (Appeals), the order of the original adjudicating authority was upheld. Against this order of the Commissioner (Appeals), this appeal along with stay application have been filed.

Appellant’s contention:- Shri Manish Saharan, Advocate, the learned Counsel for the appellant pleaded, that as early as in May, 2001 vide their letter dated 23-5-2006, they had intimated the Department about the receipt of the defective CPTs for repairing/re-making, in course of which the same are dismantled, usable parts are salvaged and by using salvaged and fresh parts, new CPTs are made in the same production line and in the same manner, which are cleared on payment of duty, that the CENVAT credit demand is, therefore, time barred, that making of CPTs by using the salvaged parts and new parts would amount to manufacture, and in this regard, he relies upon the decision of the Tribunal in the case of Commissioner of Central Excise, Ahmedabad v. Tudor (I) Ltd. reported in 2006 (197)E.L.T.53 (Tribunal - Mumbai)and also the Tribunal’s judgment in the case of Maruti Udyog v. CCE, New Delhi-III reported in 2002 (146)E.L.T.427 (Tribunal - Delhi), that in both the judgments, it has been held when the defective/damaged goods cleared on payment of duty, are received back in the assessee’s factory and the same are re-made after dismantling them and using the salvaged parts, the process would amount to manufacture and thus, on merits, the CENVAT credit on fresh parts used in remaking of CPTs has been correctly availed, that the impugned order is, therefore, not correct, that the appellant have strong prima facie case and, therefore, the requirement of pre-deposit of the CENVAT credit demand, interest and penalty may be waived and recovery thereof may be stayed during the pendency of the appeal.

Respondent’s contention:- Shri G.R. Singh, the learned DR, opposed the contentions of the learned advocate by emphasizing that the process undertaken by the appellant in respect of the defective CPTs does not amount to manufacture, that in this regard, he relies upon the judgments of the Tribunal in the case of CCE, Meeerut v. Samtel Colour Ltd. reported in 2001 (135)E.L.T.288 (Tribunal-Delhi) (para-8)of the judgment, wherein it has been held that the new CPTs made by dismantling the defective CPTs received from the customers for repairs by using the salvaged parts of defective CPTs and new parts does not amount to manufacture, that the same view has been taken by the Tribunal in the case of Hotline CPT Ltd. v. CC, Indore reported in 2011 (266)E.L.T.371 (Tribunal - Delhi), that extended period under Section 11A(1) proviso has been correctly invoked, that there is no infirmity in the impugned order and that, therefore, this is not the case for waiver from the requirement of pre-deposit.

Reasoning of judgement:- In this case the defective CPTs, which had earlier been cleared on payment of duty, had been received back in the factory for being re-made in the terms of the provisions of Rule 16 of the Central Excise Rules, 2002. From the records, it is clear that the defective CPTs received back had been dismantled and thereafter by using salvaged parts and fresh parts, the entire process of manufacturing is undertaken on the same production line. The fresh CPTs made had been cleared on payment of duty. Under the provisions of Rule 16 of the Central Excise Rules, 2002, when duty paid goods are returned to the factory of manufacture, for being repaired, re-made, refined, re-conditioned, etc., the manufacturer take the CENVAT credit of the duty originally paid and thereafter in terms of provisions of sub-rule (2), at the time of clearance of the repaired/re-made goods, if the process undertaken does not amount to manufacture, he is required to pay the duty amount equal to the CENVAT credit taken, but if the process amounts to manufacture, he is required to pay the duty chargeable on the goods at the rate applicable on the date of removal and on the value determined under the provisions of Section 3(2), Section 4 or Section 4A, as the case may be. There is no provisions in Rule 16 that CENVAT credit in respect of the inputs used in the process of repairing/refining would not be available. Moreover, in two judgments of the Tribunal namely, Maruti Udyog Ltd. v. CCE, Delhi-III (supra) and CCE, Ahmedabad v. Tudor (I) Ltd. (supra), wherein the process of the similar type undertaken by the appellant has been held to be manufacture. Besides this, they also find that the appellant had disclosed the process undertaken by them as early as in the month of May, 2001 in respect of the defective CPTs received from their customers and hence, the department cannot allege suppression of facts saying that the appellant had not disclosed that they were taking CENVAT credit on the inputs used in re-making of the goods. In view of this, there is merit in the appellant plea. In these circumstances, they hold that the appellant has correctly availed the CENVAT credit on input and the same cannot be denied.

With these terms, the impugned order is set aside and the appeal is allowed with consequential relief, if any.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that re-making of defected colour picture tubes and clearance thereof on payment of duty after using salvaged parts and fresh parts amounts to manufacture and there is no embargo in availing the cenvat credit on the inputs used therein including the defected items. There is no provisions in Rule 16 of Central Excise Rules, 2002 for denial of Cenvat credit in respect of inputs used in process of repairing/refining, when process amounts to manufacture. As per Rule 16, 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, re-conditioned 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. Hence assessee is entitled for CENVAT credit on Re-making of defected goods because their clearance has been made on payment of duty.

Prepared by:- Monika Tak

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PJ/CASE-LAW/2015-16/2760

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