By TIOL News Service

MUMBAI, FEB 26, 2013: THE applicant is a manufacturer of motor vehicle parts, components of brass bars and electrical wiring accessories. They had received in their factory their own duty paid finished goods after rejection by the customers and on receipt of the said goods, the applicant availed CENVAT credit in terms of Rule 16(1) of the Central Excise Rules.

Subsequently, these goods were cleared as ‘Scrap' on payment of duty. It is the contention of the Revenue that the applicant should have reversed the entire CENVAT credit availed by them u/r 16(1) of the CER, 2002 when they received the rejected goods. Accordingly, a demand of Rs.3,61,489/- was issued and confirmed by the lower authorities along with penalty & interest.

Before the CESTAT, it is submitted that -

+ the applicant had informed the Revenue on 17.03.2008 and 30.07.2008 about the process of melting of the said rejected goods to convert them again into brass bars and thereafter further re-manufacturing the brass components made them eligible for availing the CENVAT credit of duty paid on the said rejected goods & hence portion of the demand is time barred.

+ when the rejected goods were cleared by them as scrap the duty at the appropriate rate was paid by them and this fact has not been taken into account by the Revenue.

+ the rate of duty applicable on the scrap is almost equal to the rate at which the CENVAT credit has been denied to them.

+ reliance is placed on the decision in Alcobex Metals Ltd. vs. CCE 1993(68)ELT 146(T) and Amco Batteries Ltd. vs. CCE, Bangalore (2003-TIOL-50-SC-CX) in support.

The Bench held -

“5. After hearing both sides, I find that the issue involved is whether the applicant is required to reverse the CENVAT credit availed by them in terms of Rule 16 of the CENVAT Credit Rules in respect of the goods which were originally cleared by them and rejected by their customers and are received back in their factory. These rejected goods are subsequently cleared by them as scrap on payment of duty. I find that the show cause notice in this case was issued on 08.07.2009 invoking the five-year period and demanding duty for the period September 2005 to March 2009. The fact that the applicant has already paid the duty as applicable to the scrap has not been taken into consideration by the department. As contended by the learned Advocate, the rate of duty applicable is almost the same on the scrap as paid by the applicant and the CENVAT credit as demanded by the department. In view of the fact that the applicant has already paid the duty on the scrap, I find that the applicant has been able to make a strong prima facie case in their favour. The decision of the Tribunal in the case of Alcobex Metals Ltd. (supra) also supports the case of the applicant. Accordingly, waiver is granted and there shall be stay against the recovery of duty, interest and penalty during the pendency of the appeal....”

In fine, the Stay application was allowed.

In passing : See Menon Piston Rings Pvt. Ltd. (2007-TIOL-309-CESTAT-MUM).

(See 2013-TIOL-370-CESTAT-MUM)