Whether credit admissible on rejected goods whose parts used in manufacturing new product?

PJ/CASE LAW/2015-16/2815

Case:- CONDON POWER PRODUCTS P. LTD. VERSUSCOMMISSIONER OF C. EX., DELHI-IV

Citation:-2015 (322) E.L.T. 755 (Tri. - Del.)

Brief facts:- The appellant is in appeal against the impugned order wherein credit has been denied on the returned goods.
The facts of the case are that the appellant is manufacturer of electric motors and PD pumps. During the course of audit it was observed that during the periods 2006-2007 and 2008-2009 the appellant availed Cenvat credit on the goods returned as defective/rejection by the buyers. The said goods were scrapped and the parts thereof were used in manufacturing of new product. Revenue is of the view that as per Rule 16(1) of the Central Excise Rules, 2002 such rejected goods were required to be sent back after repairs/rectification failing which Cenvat credit taken on such rejection was to be reversed. On these basis a show cause notice was issued to the appellant for reversal of Cenvat credit on the rejected goods received by them along with interest and penalty also proposed on the appellant and their employee. The show cause notice was adjudicated. The denial of Cenvat credit was confirmed along with interest and penalty on both the appellants before them are imposed. Aggrieved from the said order appellants are before tribunal.

Appellant’s contention:-The ld. Counsel appearing on behalf of the appellant submits that the appellant has received rejected goods which were not reusable. Therefore, they dismantled these goods and the parts of these goods were used in manufacturing of new goods. Therefore, they have correctly taken the Cenvat credit. To support this contention he relied on the decision in the case of International Tobacco Ltd.v. C.C.E & S.T.-2013 (292)E.L.T.263 (Tri-Del).He further submits that as the reversal of Cenvat credit on returned goods as shown by them in statutory records. Therefore, extended period of limitation is not invokable. In the light of the decision of this Tribunal in the case of Rainbow Plastic Industries v. C.C.E. Surat-2011 (274)E.L.T.577 (Tri-Ahmd) and in the case of BCH Electric Ltd.v. C.C.E. Delhi-2013 (31)S.T.R.68 (Tri-Del).

Respondent’s contention:-On the other hand Ld. AR oppose the contention of the Ld. Counsel and submits that although the appellant has recorded the return of these damaged goods in the RG 23 register part 1 and part 2 but not recorded the dismantle goods in their stock register. Therefore, the extended period of limitation is rightly invoked. He further submitted that the decisions in the case of International Tobacco relied upon by the Ld. Counsel is only a stay order and same cannot be relied. Therefore, appellants are required to reverse the Cenvat credit.

Reasoning of judgment:-The short issue before them to decide is that whether the appellant is entitled to take Cenvat credit on the rejected goods received by them from their customers which were dismantled by them and part thereof used by them in manufacture of new product or not. The provisions of Rule 16 (1) of the Central Excise Rules 2002 are relevant for availment of Cenvat credit thereon. For better appreciation Rule 16(1) is reproduced here 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, 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 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 removal 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.
On going through the provisions of the said rule they find that the assessee is entitled to take Cenvat credit which are duty paid. If the said goods are being remake, revision, recondition or for any other reason the assessee is required to record such receipts in their records and is entitled to take Cenvat credit on duty paid on such goods on their receipt. Admittedly, in this case the goods which have been received were damaged goods by the appellant have been dismantled and used for manufacturing of new product. Therefore, the appellant satisfied the conditions of Rule 16(1) ibid. Therefore, they hold that appellant is entitled to take Cenvat credit on these rejected goods. The said view has been supported by this Tribunal in the case of International Tobacco Ltd. (Supra), although that being a stay order. Therefore, they hold that appellant have taken the Cenvat credit correctly.
With this view they do not find any merits in the impugned order. Same is set aside. Appeals are allowed with consequential relief if any.

Decision:-Appeals allowed.

Comment:-The analogy of the case is that the assessee is entitled to take cenvat credit on the rejected goods even if the parts of the rejected goods are used in manufacturing new products. This is for the reason that at times it is not possible to rectify the rejected or damaged goods but as far as duty is paid on the clearance of new manufactured finished goods, there is no embargo in availing the cenvat credit.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2815

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