Cenvat credit reversal on inputs bars a second 10% demand on finished sprinkler systems

Where 10% of the value of HDEP pipes used in manufacture had already been paid under Rule 6(3)(B) of the Cenvat Credit Rules, 2002, a separate demand of 10% on the value of the sprinkler systems cleared from the factory was not legally sustainable. The Tribunal, following its earlier view in the same assessee's case, held that the prescribed payment on the input pipes discharged the relevant obligation and the assessee could not be fastened again with a further liability based on the finished sprinkler systems. The demand, together with interest and penalty, was therefore set aside.

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Issues: Whether the appellant was required to pay an amount equal to 10% of the value of sprinkler systems cleared from the factory when it had already paid 10% of the value of HDEP pipes used in their manufacture under Rule 6(3)(B) of the Cenvat Credit Rules, 2002.

Analysis: The appellant had used HDEP pipes in the manufacture of sprinkler systems and had discharged 10% of the value of such input pipes. The Tribunal relied on the decision in the appellant's own case and accepted that once the prescribed amount had been paid on the input pipes used in manufacture, the appellant could not again be fastened with a separate liability calculated on the value of the sprinkler systems. The demand therefore lacked legal basis on the facts found.

Conclusion: The appellant was not liable to pay 10% of the value of the sprinkler systems, and the demand, interest and penalty could not be sustained.

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