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CX - CENVAT - Inputs sent to job worker returned as rejected/spoiled - no cause for denial of credit: CESTAT by Majority

 

By TIOL News Service

CHANDIGARH, MAY 11, 2018: THE appellant is engaged in the manufacture of shock absorbers.

A show cause notice was issued to the appellant seeking to deny cenvat credit of -(a) Rs.6,00,613/- on inputs which were sent to the job worker for processing but received back by the appellant as rejected/spoiled and (b) Rs.67,16,069/- availed on the raw materials/inputs which was not received back from the job workers on account of generation of waste/scrap.

The demand was confirmed and equivalent penalty imposed.

In appeal, the Member (Judicial), on the issue of entitlement of CENVAT credit on inputs that were sent to the job worker but received back as rejected/spoiled, held that the credit is admissible in view of the decision in Asahi India Safety Glass Limited 2004-TIOL-29-HC-DEL-CX .

On the second issue of inputs that were not returned on account of generation of waste/scrap at the job worker's end, the Member (J) observed that the CBEC had in Circular B-4/7/2000-TRU dated 03.04.2000 clarified that CENVAT credit would be admissible on the part of input that is contained in any waste, refuse or by-product and in view of the Tribunal decisions in Mahindra Hinoday Industries Ltd. 2014-TIOL-2450-CESTAT-MUM, Mukand Ltd. - 2015-TIOL-353-CESTAT-MUM, held that once the waste and scrap generated at the end of the job worker had been cleared on payment of duty, the appellant could not be denied CENVAT credit.

Holding that the appellant had correctly taken CENVAT credit, the impugned order was set aside and the appeal was allowed with consequential relief.

The Member (Technical) had a differing view on the point of CENVAT credit taken on inputs sent to the job worker but received back as rejected/spoiled.

Agreeing with the findings of the adjudicating authority on this count, the Member (Technical) upheld the confirmation of demand of Rs.6,00,613/-, interest thereon and equivalent penalty.

The matter was, therefore, referred to the third Member.

The Member (Technical) referred to paragraph 3.7 in Chapter 5 (CENVAT Credit) of the CBEC Supplementary Manual which reads -

3.7 CENVAT credit is also admissible in respect of the amount of inputs contained in any of the waste, refuse or bye product. Similarly, CENVAT is not to be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from payment of duty. The basic idea is that CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly .

And observed -

"27. …, I find that there is no dispute that input were issued for manufacture and during manufacture they were either rejected or spoilt and then returned back to the manufacturer by the job worker. Therefore, I am satisfied that the requirement of para 3.7 of Supplementary Instructions are satisfied in respect of subject inputs and therefore I hold that there is no need for reversal of Cenvat credit of Rs.6,00,613/- in the facts and circumstances of the present case."

The third Member(T) on reference agreed with the opinion of Member (J).

Accordingly, in view of the Majority decision, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-1492-CESTAT-CHD )


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