2015 (12) TMI 1004 - AT - Central Excise

Tribunal Rules in Assessee's Favor on Excise Duty Appeal, Emphasizes Rule 16 Interpretation

The Tribunal set aside the demand in the assessee's appeal, holding that the second leg of Rule 16(2) applied and the appellants correctly discharged ... Demand of equal amount of credit availed on the duty paid goods returned under Rule 16 (2) o Central Excise Rules - Denial of refund claim - Held that:- There is no dispute on the facts that certain quantities of finished goods were rejected and returned by the customers for various reasons and the cenvat credit of duty paid was taken by the appellants under Rule 16(1) and subsequently the rejected goods were sold in auction as such and cleared on payment of duty on the transaction value in terms of second leg of sub-rule (2) of Rule 16. - Whereas, the assessees contended that they have correctly paid the excise duty while removing the said goods and stated that they are covered under the second part of sub-rule (2) of Rule 16 under the term used “any other case” stated in the said sub-rule. We find that both sides sought to interpret the provisions of Rule 16 in their own way. The period of dispute is from 01.07.2001 to 30.06.2005 in the assessee s appeal and from July, 2007 to March, 2010 in the Revenue s appeals. It is established beyond doubt that no process has been carried out on the returned goods. Therefore, on the question of whether first part of sub-rule or the second part of sub-rule of Rule 16 is applicable, we find on the very same issue has been dealt in detail by the Tribunal’s co-ordinate Bench, Mumbai in the case of M/s. Apollo Tyres Ltd. Vs. CCE, Pune-II (2010 (2) TMI 846 - CESTAT, MUMBAI) allowed the appeal. - issues are identical and the duty paid goods are rejected and returned to the factory of the assessee and without doing any processes the said goods were sold by auction to third party “as is where is basis” and cleared on payment of excise duty on the transaction value as per Section 4 of the Central Excise Act. - appellants are not liable to pay the amount equal to cenvat availed on the returned goods. Accordingly, the demand is set aside in the assessee s appeal. Consequently, they are not liable for any penalty and the same is also set aside. - Decided in favour of assessee. Issues Involved:1. Demand of differential duty and education cess.2. Rejection of refund claims.3. Interpretation of Rule 16(2) of the Central Excise Rules.4. Limitation period for demand.5. Applicability of case laws and precedents.Issue-wise Detailed Analysis:1. Demand of Differential Duty and Education Cess:The appellants were engaged in manufacturing steel products and took CENVAT credit for customer-rejected goods under Rule 16(1) of CER, 2001/2002. The goods were later sold in auctions with duty paid based on transaction value. The department alleged that the appellants did not reverse the equivalent amount of CENVAT credit. A show cause notice (SCN) demanded differential duty and education cess, along with interest and penalty under Section 11AC. The adjudicating authority confirmed the demand of Rs. 1,21,99,895/-, interest, and equivalent penalty under Section 11A.2. Rejection of Refund Claims:The respondents filed refund claims for the differential duty due to the difference between CENVAT credit taken and duty paid on resale. The adjudicating authority rejected the refund claims. However, the Commissioner (Appeals) set aside the rejection, allowing the appeals with consequential relief, following the Tribunal's decision in Apollo Tyres Ltd. vs. CCE, Pune-III. The Revenue appealed against this decision.3. Interpretation of Rule 16(2) of the Central Excise Rules:The appellants argued that they correctly followed Rule 16(1) for returned goods and paid duty on resale based on transaction value, as no manufacturing process was undertaken. They contended that the second leg of Rule 16(2) applied, and Rule 16(3) was not invoked in the SCN. The Tribunal examined Rule 16, which allows CENVAT credit for returned goods and stipulates two scenarios under Rule 16(2): if no manufacturing process is undertaken, the credit must be reversed; otherwise, duty is paid on transaction value. The Tribunal found no manufacturing process was undertaken, thus the second leg of Rule 16(2) applied, validating the appellants' actions.4. Limitation Period for Demand:The appellants argued that the demand was time-barred, as they had filed TR-1 returns indicating the returned goods under Rule 16(1) and their removal under Rule 16(2). The Tribunal accepted this argument, noting that the appellants had clearly described the process in their returns and invoices, making the demand hit by limitation.5. Applicability of Case Laws and Precedents:The appellants relied on the Tribunal's decisions in Apollo Tyres Ltd. and Craftsman Automation (P) Ltd., which interpreted Rule 16(2) similarly. The Tribunal agreed, noting that the duty paid on resale was in line with the second leg of Rule 16(2). The Tribunal found that the Revenue's reliance on earlier case laws was not relevant, as they predated the Apollo Tyres and Craftsman Automation decisions.Conclusion:The Tribunal set aside the demand in the assessee's appeal, holding that the second leg of Rule 16(2) applied and the appellants correctly discharged excise duty on resale. Consequently, penalties were also set aside. The Tribunal upheld the Commissioner (Appeals) orders, rejecting the Revenue's appeals and confirming the refund claims. The judgment emphasized the correct interpretation of Rule 16(2) and the applicability of relevant case laws, providing clarity on the treatment of returned goods and associated CENVAT credit.