High Court Upholds Tribunal Decision on Cenvat Credit for Tooth Brush, Sets Aside Penalties

COMMR. OF C. EX., CUS. & ST., DAMAN Versus PRIME HEALTH CARE PRODUCTS

COMMR. OF C. EX., CUS. & ST., DAMAN Versus PRIME HEALTH CARE PRODUCTS - 2011 (272) E.L.T. 54 (Guj.) Issues:
1. Whether CESTAT was justified in allowing Cenvat Credit on Tooth Brush not manufactured by the assessee and not added in the MRPRs.
2. Whether CESTAT was justified in setting aside the penalty for contravention of Cenvat Credit Rules on Tooth BrushRs.

Issue 1 Analysis:
The appellant, Commissioner of Central Excise, challenged the decision of CESTAT allowing Cenvat Credit on Tooth Brush not manufactured by the assessee and not included in the MRP. The respondent-assessee, engaged in Tooth Paste manufacturing, availed Cenvat credit on Tooth Brush purchased from other manufacturers. The revenue contended that Tooth Brush was not an input for Tooth Paste and its cost was not included in the MRP, violating Cenvat Credit Rules. A show cause notice was issued for recovery of wrongly taken credit. The Joint Commissioner disallowed credit, imposed penalties, and interest. The Commissioner (Appeals) upheld a reduced duty demand and penalties. The Tribunal, citing precedents, allowed the Cenvat credit, considering the toothbrush as part of the final product's marketability. The High Court analyzed Rule 3(1) of Cenvat Credit Rules, defining 'input' to include final product accessories. As excise duty was paid on Tooth Brush, and it was packed with Tooth Paste without extra cost to consumers, the Court upheld the Tribunal's decision, stating the credit was admissible.

Issue 2 Analysis:
The second issue revolved around the penalty imposed for contravening Cenvat Credit Rules on Tooth Brush. The Joint Commissioner directed recovery and penalties, which were reduced by the Commissioner (Appeals). The Tribunal, following legal precedents, allowed the Cenvat credit, considering the packing of Tooth Brush and Tooth Paste as a manufacturing process. The High Court examined Section 2(f) of the Central Excise Act, defining 'manufacture' to include packing goods in a unit container. As Tooth Brush and Tooth Paste were packed together, falling under the Act's definition of manufacture, the assessee was entitled to claim Cenvat credit on such inputs. Consequently, the Court dismissed the appeal, finding no substantial question of law arising from the Tribunal's order.

In conclusion, the High Court upheld the Tribunal's decision, allowing Cenvat Credit on Tooth Brush and setting aside penalties imposed for contravening Cenvat Credit Rules. The judgment emphasized the definitions of 'input' and 'manufacture' under the Cenvat Credit Rules and the Central Excise Act, supporting the admissibility of the credit based on legal provisions and precedents.