By TIOL News Service

CHENNAI, MAR 12, 2016: THE appellants are engaged in the manufacture of 'steel strips, sheets and tubes etc., falling under Chapters 72 and 73 of the Central Excise Tariff Act, 1985 and discharging excise duty. They are receiving back certain customer rejected goods under their invoices and they are taking cenvat credit under Rule 16(1) of CER, 2001/CER, 2002. Subsequently, the same goods were sold in auction and the appellants are paying duty at the time of removing the goods as per the transaction value. It was alleged that the appellants are not reversing equal amount of cenvat credit availed for the rejected goods. After detailed investigation, a SCN was issued demanding differential duty and education cess between the cenvat credit taken and duty paid on the clearances to the dealers and also proposed interest and penalty under Section 11 AC of the Act. The adjudicating authority in his impugned order confirmed the demand.

The appellant contended that if no process is undertaken, first leg of Rule 16(2) will not be applicable and the second leg of Rule 16(2) will apply. They also submitted that Rule 16 (3) is not applicable since the same was not invoked in the SCN. The adjudicating authority invoked 16(3) and confirmed the demand, which is beyond the scope of SCN. Once, the adjudicating authority has held that mere visual inspection is not a process, which amounts to manufacture. Therefore, they are clearly attracted to 16(2) second leg 'in any other case' and they have correctly paid the duty. In this case, there is no dispute on the applicability of 16(1) or 16(2) and there was no reason to seek the Commissioner of Central Excise issue to issue any guidelines under Rule 16(3).

After considering rival submissions, the Tribunal held:

(i) Sub-rule (2) contemplates two situations (i) if the process undertaken by assessee does not amount to manufacture, then they shall pay the amount equal to Cenvat credit taken and (ii) 'in any other case', assessee shall pay duty on goods returned under Sub rule (1) as per transaction value . In the case, it is established beyond doubt that no process has been carried out on the returned go ods. Hence, on the question whether first part or second part of sub-rule (2) of Rule 16 is applicable, it is clear that appellant is covered by Second part of the Sub rule, i.e., 'in any other case' as there is no process carried at all on the goods returned which are cleared 'as such'. In view of the precedent decision in case of Apollo Tyres Ltd, when returned goods are cleared as such without any process, appellant has correctly discharged excise duty under second part of Rule16(2) on the returned goods cleared as such and are not liable to pay the amount equal to Cenvat credit availed on them.

(See 2016-TIOL-597-CESTAT-MAD)