By TIOL News Service

MUMBAI, MAR 16, 2018: THE Appellant is a manufacturer of aseptic packing for various overseas customers and had used imported raw materials.

CENVAT credit of additional duty of Rs.5,24,735/- was availed by the appellant and the cost of those materials were recovered from customers by raising debit notes amounting to Rs.3,21,587/- in foreign currency.

Revenue alleged that the appellant had failed to reverse the credit availed on the inputs used in the trial production.

A demand notice was issued and the same was confirmed by the adjudicating authority and upheld by the Commissioner(A).

The original authority held that - the trial run did not result in any production of commercial value and as the appellant did recover the cost of inputs by raising debit notes with no evidence produced before the original authority to establish that inputs had been utilized for the manufacture of excisable goods, the recovery was obligatory.

The appellant is before the CESTAT and submits that the trial run was a necessary stage in the run up to commencement of production and that just as generation of waste product arising in the process of manufacture is no ground for refusal of admissibility of credit so also the production in a trial run cannot be denied eligibility for CENVAT credit.

The AR supported the order and sought dismissal of the appeal.

The Member (Technical) considered the submissions and observed -

+ One of the reasons cited in the impugned order for denial of credit is that there is no evidence of discharge of duty liability as waste and scrap on poor quality goods arising in the trial production.

+ This is a specious argument, for the leviability of duty on such waste and scrap arising in the production process is not the issue in dispute and failure to demand duty on such goods cannot impinge on the credit available on inputs used in the manufacturing process.

+ The reality of manufacture makes trial run a necessity and there is no provision for deniability of credit of inputs used for production process in CENVAT Credit Rules, 2004.

+ The dutiability, or otherwise, of the waste product does not, in any way, attract restrictions on availment of CENVAT credit of the inputs used therein.

+ The recovery of cost of inputs from the foreign customers through debit notes does not alter the eligibility to take credit of tax paid on tax liability that has been duly discharged.

Concluding that the reasons given by the lower authorities for disallowance of CENVAT credit is without any basis, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-841-CESTAT-MUM)