Receipt of duty paid goods from another unit and clearance after putting ISI mark covered by Rule 16

PJ/Case Law /2016-17/3240

Case- NCL INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX. & S.T., GUNTUR

Citation-2016 (337) E.L.T. 438 (Tri. - Hyd.)

Brief Facts-The appellants are engaged in the manufacture of cement and are availing facility of Cenvat credit on inputs and capital goods. The company had two plants in cement division. The plant located at Mattampally, Nalgonda District had the entire setup to manufacture cement, whereas the other plant located in Kadimpathavaram is a grinding unit, which has a railway sliding facility. This unit received an order for supply of 43 grade cement with ISI Mark - The appellant received 43 grade cement from Mattampally factory and marked it with ISI mark and took credit of duty paid on the cement as input under Rule 16 of Central Excise Rules. While clearing the goods the entire credit was utilized. The department entertained the view that as cement is removed from Mattampally unit to Kadimpathavaram unit, the appellant cannot take credit on these goods as these are not inputs but finished goods.
A show cause notice was issued raising the above allegation, which after due process of law confirmed the demand of Rs. 11,17,971/- being the Cenvat credit availed on cement in the activity of bringing the cement from Mattampally unit to the appellant unit. The order also confirmed interest on the said amount and imposed penalty of Rs. 6,00,000/-.
The appellants filed appeal before the Commissioner (Appeals). The main contention raised by appellants was that as per Rule 16 of Central Excise Rules, 2002, a manufacturer can receive duty paid goods into the factory for being remade, refined, reconditioned or for any other reason and after stating the particulars of such receipt, the manufacturer is entitled to take Cenvat credit of duty paid as if such goods are received as input under the Cenvat Credit Rules, 2004. In the impugned order, the Commissioner (Appeals) has partly accepted this contention. The observation is as under.
“Thus as per the provisions of the above Rule, duty paid goods can be brought into any factory for being re-conditioned, remade, refined or for any other reason. The appellant had contested that the activity of bringing the duty paid cement from their Mattampally unit and taking credit of the duty paid and again payment of duty on the cement when cleared to their customers fall within the purview of Rule 16 of CCR, 2004. I find that in the instant case, the issue is revenue neutral as the credit availed on the cement received from Mattampally unit has been utilized towards payment of duty by the appellant while clearing the cement from Kondapally unit and it is pertinent to mention that it is not the case that the adjudicating authority had questioned the utilization of Cenvat credit towards payment of duty on clearance of cement from Kondapally. Thus, from the above, the dispute is with regard to the availment of Cenvat credit on the duty paid cement received from the Mattampally Unit. The demand for recovery of availment of Cenvat credit by the department/adjudicating authority is acceptable if ultimate exercise benefited revenue by collection of duty, no such benefit accrues to exchequer inasmuch as the issue is revenue neutral”
The Commissioner (Appeals) took the view that the entire situation is revenue neutral and that credit is admissible. However, he further held that it is a procedural infraction and that the appellants have violated the Cenvat Credit Rules and therefore, is liable to pay interest upon the irregular credit availed by them. The penalty of Rs. 6,00,000/- imposed by the original authority was reduced to Rs. 2,00,000/-. The appellants are thus before the Tribunal.

Appellant’s Contention-On behalf of the appellant, the learned counsel Shri V.J. Shankaram submitted that there was no procedural infraction committed by the appellant. That appellant is well within the statutory Rule 16 to receive duty paid goods “for any other reason” and dispatch them to customers and in this process, the appellant is entitled to take and utilize the credit of duty paid. That the activity clearly falls under Rule 16 of Central Excise Rules, 2002 and has been misinterpreted by the department has procedural infraction. That the appellant is neither liable to pay interest nor penalty. He relied upon the judgments laid in the following cases :
1. S. Kumar’s Nationwide Ltd. v. CCE, Indore - 2014 (312) E.L.T. 725 (Tri.-Del.)
2. Kelvin Process Technologies (P) Ltd. v. CCE, Ahmedabad - 2014 (314) E.L.T. 365 (Tri.-Ahmd.).

Respondent’s Contention-Against this, the learned AR reiterated the findings in the impugned order. He submitted that the goods/cement when brought into appellant unit from Mattampally unit is finished goods. They are not inputs and therefore, credit is not admissible. That Commissioner (Appeals) has rightly held the situation to be revenue neutral. That as these goods were not inputs, there was violation of Cenvat Credit Rules and therefore, the appellants are liable to pay interest and the penalty imposed is reasonable.

Reasoning Of Judgement-The Tribunalheard the rival submissions. For better appreciation Rule 16 of Central Excise Rules, 2002 is reproduced as under :
“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.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the Cenvat credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of rem oval and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.
Explanation. - The amount paid under this sub-rule shall be allowed as Cenvat credit as if it was a duty paid by the manufacturer who removes the goods.”
The above provision makes it clear that manufacturer can take credit of duty paid on the goods by treating them as inputs. It is seen from the above rule that if goods are brought for “any other reason” also, the manufacturer is entitled to take credit as if the goods are inputs. The learned counsel for appellant submitted that the appellant unit had railway sliding tracks and this is the reason that the cement was brought from Mattampally unit to the appellant unit and marked with ISI mark and dispatched to the buyer. The contention of Revenue is that the goods being cement/finished product, the credit is not admissible. Rule 16 does not require remanufacturing of goods or that goods should undergo any process after being brought to the factory and before being removed. The goods if brought for being re-made, refined, reconditioned or “for any other reason”, the rule would apply. Thus, the Tribunal did not find that there is contravention of any of the provisions of Cenvat Credit Rules, 2004. The activity falls within the ambit of Rule 16 of Central Excise Rules, 2002. On such score, the demand of interest and imposition of penalty is unsustainable.
The impugned order is therefore, set aside. The appeal is allowed with consequential reliefs, if any.

Decision- Appeal allowed.

Comment- The crux of the case is that Cenvat - Rule 16 of Central Excise Rules, 2002 permits the manufacturer to take credit of duty paid goods brought for “any other reason” also. There is no requirement of manufacturing of goods or that goods should undergo any process after being brought to factory and before being removed .Since in this case, cement received from one unit of assessee is cleared by other unit after affixing ISI mark, the second unit of assessee is entitled to take credit by treating such goods as inputs. Therefore, demand of interest and imposition of penalty is not sustainable.

Prepared By- Praniti Lalwani

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PJ/Case Law /2016-17/3240

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