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PJ/Case Law/2014-15/2187

Whether Cenvat credit be availed on goods returned to the factory on which duty was not paid at the time of clearance?

Case:- INDO COUNT INDUSTRIES LTD Vs COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR
 
Citation:- 2014-TIOL-352-CESTAT-MUM

Brief facts:- The application sought waiver of pre-deposit of cenvat credit of Rs. 68.45 lakhs and equal amount of penalty imposed under Rule 15(2) of the Central Excise Rules, 2004 read with Section 11AC(1)(a) of the Central Excise Act.
 
Appellant’s contentions:- At the outset, the learned Advocate, Mr. V.B. Gaikwad, for the applicant, submitted that during the relevant period October 2011 to November 2011, they availed Cenvat credit amounting to Rs. 68.45 lakhs on the CVD paid against re-importation of their goods, viz cotton fabrics and made-up articles exported earlier. He submitted that because of the defect in the said goods, the overseas buyer rejected the goods and sent it back to the applicant. It was his submission that the only ground on which the cenvat credit was denied to the applicant, was that initially, the goods were not duty paid and hence, when it was returned to the factory, after rejection, it could not be admissible to cenvat credit under Rule 16 of the Central Excise Rules, 2002. The learned Advocate did not plead any financial hardship
 
Respondent’s contentions:- The learned AR for the Revenue reiterated the findings of the adjudicating authority and submitted that Rule 16 of the Central Excise Rules, 2002 was very specific. Therefore, the applicant was not entitled to cenvat credit.
 
Reasons of judgment:- Heard both sides and perused the records, the Tribunal held that it was not in dispute that the applicant had, after initial export of the goods, received back the rejected goods and paid CVD at the time of its reimport and availed CENVAT Credit of the CVD paid on the rejected goods, under Rule 16 of the Central Excise rules, 2002. The said Rule 16 reads as:
"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 were 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 were received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.
(2) ............................................................................................"
On a preliminary analysis of Rule 16 of the Central Excise Rules, 2002, prima facie, the Tribunal was of the view that any goods on which duty had been paid at the time of removal when brought back to the factory for processes mentioned therein, would be eligible to cenvat credit. In these circumstances, they of the opinion that the applicant was not able to make out a prima facie case for total waiver of the dues adjudged. Keeping in view the interest of revenue as well as the principles of law settled by the Hon'ble Supreme Court and High Courts on the issue of disposal of stay applications, they directed the applicant to deposit 50% of the cenvat credit involved in the present case. On deposit of the same, the balance dues adjudged would stand waived and its recovery stayed during the pendency of the appeal.

Decision:- Pre deposit ordered.

Comment:- The analogy drawn from the case is that as per Rule 16 any goods on which duty had been paid at the time of removal when brought back to the factory for processes mentioned therein, would be eligible to cenvat credit. Hence since the goods in the case were cleared without payment of duty therefore, cenvat credit could not be availed on the same when imported back.
 
Prepared by:- Ranu Dhoot

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