Revenue neutrality defeats excise demand where returned goods are reassembled and duty is paid again on subsequent clearance.

Duty demand, interest and penalty were held unsustainable where excisable goods were first cleared on payment of central excise duty, later returned by customers, taken back on credit of the original duty, reassembled, and cleared again on payment of duty. The tribunal treated the arrangement as revenue neutral because, if the Department's view that the later activity did not amount to manufacture were accepted, the duty paid on the second clearance would have been refundable. On that basis, the demand was set aside in favour of the assessee.

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Issues: Whether duty demand, interest and penalty were sustainable when excisable goods cleared on payment of duty were returned by customers, credit of the original duty was taken on receipt back, and duty was again paid on the reassembled goods.

Analysis: The assessee had cleared the goods on payment of central excise duty, and when the same goods were received back from customers, credit of the duty originally paid was availed. The returned goods were broken up and reassembled, and duty was again paid on the subsequent clearance. In these circumstances, the situation was held to be revenue neutral, because if the Department's case that the activity did not amount to manufacture were accepted, the duty paid on the second clearance would itself have been refundable. The demand was therefore not justified.

Conclusion: The demand, interest and penalty were not sustainable and were set aside in favour of the assessee.

Ratio Decidendi: Where duty is paid on the original clearance of goods, the goods are returned, and duty is again paid on their subsequent clearance, a demand cannot be sustained when the overall exercise is revenue neutral.

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