By TIOL News Service

MUMBAI, SEP 21, 2013: THE appellants are engaged in the manufacture of aerated water having several bottling plants located across the country. The aerated water manufactured by them are removed in returnable glass bottles and plastic crates which when new are purchased by them from glass/plastic crates manufacturers. The credit of duty on glass bottles/plastic crates is availed at the time of receipt of glass bottles and plastic crates from its manufacturers. Used empty glass bottles/plastic crates are returned to the factory after consumption of liquid beverages by the consumers. These used empty glass bottles/plastic crates are re-used in the factory for filling liquid beverages after cleaning of glass bottles etc. This reuse goes on till bottles/plastic crates are broken or become unfit for further use. When the used bottles are brought to the factory, no credit is taken as credit had been already availed at the time of first receipt and no reversal of credit is done when cleared alongwith liquid beverages. Further, such used bottles/plastic crates are not be accompanied by any duty paying documents.

However, manyatime such used empty bottles/plastic crates after cleaning etc. are transferred from one unit to other unit due to various operational/commercial considerations. For example, a unit may be facing shortage of empty bottles/crates while other unit may have excess stock. Further, each unit serves particular geographical area. In such geographical area of each unit, numbers of depots exist. At times, in particular geographical area, demand of liquid beverages may exceed than what can be supplied by the manufacturing unit concernedat that point of time. It can also be due to a particular variety not being manufactured in that unit. In such situation liquid beverages from other unit is received in the depots of the unit. After consumption of liquid beverages, used empty bottles/crates are returned to the jurisdictional unit as normally no distinction can be made in the used bottles of particular unit. Even if distinction can be made, (due to different variety of beverages), these may be returned for cleaning etc. to take care of hygienic aspects and thereafter returned to the original unit. Bottles/crates do not have marks and numbers and it is not practically possible to identify the used bottles/crates with original duty paying documents or to which unit such bottle/crates belong. Moreover, particular bottle may become unusable after using once or after large number of usages. This is unknown. Only average number of usages can be found.

Probably, after understanding the distribution &logistics one may have understood where the problem lies from the Central Excise point of view. Simple - CENVAT credit availed on the bottles/crates!

The Pune episode

During April, 2001 to July, 2006, the Pune unit of the appellant transferred used empty glass bottles and crates to its sister units under empty dispatch Memo (EDM). No CENVAT Credit was reversed/paid by them at the time of clearance/transfer to other units or thereafter. Two demand notices were issued. The first one (April 2001- March 2006) was adjudicated by Commissioner, the second one (April 2006 - July 2006) was adjudicated by Assistant Commissioner and thereafter appeal decided by the Commissioner (A).

Needless to mention, the conclusion in the two orders are same - the demand was confirmed by holding that the assessee failed to follow the provisions of Rule 16 of the CER 2002.

The Nashik & Wada episode

In the case of the Nashik Unit, a different methodology was adopted. Here used empty glass bottles/plastic crates were sent by Nashik Unit to Wada unit in Thane by paying/reversing credit amounting to Rs.2,60,56,423/- between April 2003 to June 2004 on empty glass bottles/plastic crates. On receipt of the same, the Wada unit availed the CENVAT Credit of Rs.2,57,00,701/- (balance amount not availed for want of original excise invoices).

The CCE, Thane-I disallowed the CENVAT Credit by holding that the used empty glass bottles/crates belong to Wada unit and, therefore, there was no reason for the Nashik unit to clear these bottles/crates under the description “inputs cleared as such” on reversal of credit under Rule 3(5) of the CCR. Inasmuch as it is alleged that since the Nashik Unit has not taken the credit on these bottles initially there cannot be reversal of credit or clearance of input as such by Nashik Unit. And importantly, the Wada unit cannot take CENVAT Credit twice on the same bottles.

Apart from the above there are some miniscule amounts confirmed and which too concern CENVAT credit.

Be that as it may, the submission of the appellants before the CESTAT in response to both the above categories of duty demand is -

+ plain reading of Rule 16 of CER, 2002 would indicate that the said Rule applies only to duty paid goods which are returned to the factory for remaking, reconditioning, reprocessing etc. What was cleared was liquid beverages and duty was paid on liquid beverages. Glass bottles/crates were packing/transportation material. No separate duty was paid on these items at the time of clearance of liquid beverages. When such used bottles/crates were returned, no credit was taken under Rule 16 of the Central Excise Rules (as there was no duty payment document) and hence there is no question of paying duty under Rule 16 (2) of the CER, 2002.

+ CCE, Thane-I has no jurisdiction to dispute what has been done in Nashik, which is under the jurisdiction of Central Excise, Nashik. Till today,NashikCommissionerate has not challenged or disputed what has been done there. Thane Commissioner could have taken up with Nashik if anything wrong was done by the appellant. The department has not been able to adduce any evidence to prove that the used bottles/used crates were the ones on which Wada unit has initially taken the credit. It is only the numerical number which can be tallied. Bottles/Crate does not have any number or identification mark so as to identify with particular units. Initially, when they were clearing without reversal of credit, department in Visakhapatnam and Pune objected to that and wanted reversal of CENVAT Credit and now when they reversed the credit at Nashik, Wada Unit is objecting to taking the credit.

The Bench tackled the Pune episode thus -

After reproducing the contents of Rule 16 of the CER, 2002, the Bench observed -

+ From Sub-Rule (1), we observe that the said rule is relating to goods brought to the factory where

(i) duty has been paid at the time renewal, thereof; and

(ii) are brought to the factory for being remade, refined, reconditioned or for any other reasons.

If above mentioned two conditions are satisfied then assessee is entitled take CENVAT Credit of the duty paid as if such goods are received as inputs.

We note that in respect of used glass bottles/ used plastic crates, no separate duty has been paid at the time of removal as these were part of liquid beverage being cleared by the appellants. Duty was paid by the original manufacturer of glass bottles/plastic crates and credit of the duty so paid has already been taken by some or other unit of appellant.

Appellant under the circumstances cannot take credit of duty, as it will amount to taking credit of duty twice. Sub-rule (2) of Rule 16, stipulates two situations viz.

(a) where the process to which the goods are subjected before being removed does not amount to manufacture.

(b) Cases other than (a) above.

In situation covered by (a) above, manufacturer is expected to pay an amount equal to CENVAT Credit taken. In situation (b), manufacturer shall pay duty on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A. In the present case, goods received are used glass bottles/plastic crates and goods cleared are also used glass bottles/plastic crates (perhaps after cleaning etc), the process, if any, will not amount to manufacture. So present case will be covered by situation (a). In this situation, manufacturer is expected to pay an amount equal to CENVAT Credit taken. In the present case, we find that correctly (as discussed earlier) no CENVAT Credit was taken at the time of receipt of used glass bottles/plastic crates, therefore amount to be paid at the time of clearance will be zero. We, therefore, do not find any justification to confirm the demand in the first two orders. Accordingly, we set aside the two orders…

As regards the Nashik/Wada demand, the Bench observed -

+ we note that the nature of goods is such that identification with a particular unit is not practically possible. (Until and unless there is some mark or shape assigned to each unit). In such a situation, it is neither possible for the assessee nor the department to prove one way or the other;

+ however, we find that the used glass bottles/crates in dispute were cleared on reversal of CENVAT Credit by the Nashik Unit. Commissioner/Nashik has not disputed the same till today i.e. even after investigations were done by Commissioner of Central Excise - Thane-I. We agree with contention that under the circumstances Commissioner/Thane I cannot deny availment of CENVAT Credit by Wada Unit on the grounds that CENVAT Credit was not required to be reversed at Nashik unit;

+ tribunal in the case of CCE, Hyderabad Vs. Tube Investments of India Ltd. (2003-TIOL-295-CESTAT-BANG) has held that once duty paid inputs received, Modvat Credit cannot be denied on the grounds that such inputs were not liable for duty. If any action for wrong payment of duty is required to be taken, it should be at the place where the duty was paid. In view of the said position, we set aside demand on this count;

As for the other minuscule demands/penalties, the Bench concluded -

"13. We have gone through the Annexure E,F,G& H of the demand notice and appellant's explanation as also findings of the adjudicating authorities. We find that appellants have admitted regeneration/reprinting of invoices covered by Annexure E,F,G, H. (This is serious thing and department can take action for that as per Law. But that has not been done, in this Show Cause Notice.) We also note that department is not disputing the duty payment at Nasik in respect of invoices where credit is taken in Wada or receipt of goods at Wada. Under the circumstances, we hold that appellants are eligible to take credit and demand in respect of Annexure F & H are set aside. In respect of demand of Rs.33,761/- and Rs.43,744/- covered by the Annexure E&G, appellants are not disputing and same have already been paid. Interest if any, in respect of these payment is also upheld. Except the demand of Rs.77,505/- all other demand has been set aside. Out of the demand of Rs.77,505/- demand of Rs.33,761/- was detected by the appellant and was paid even before investigation started. Penalty of Rs.43,744/- is upheld in respect of remaining demand. Other than this all other penalties are set aside."

In passing: Why does man kill? He kills for food. And not only food: frequently there must be a beverage. - Woody Allen

(See 2013-TIOL-1397-CESTAT-MUM)