2016 (3) TMI 439 - AT - Central Excise

Tribunal overturns CENVAT credit reversal, penalties; rules in favor of appellant.

M/s. MRF Ltd. Versus Central Excise and Service Tax

The Tribunal set aside the impugned orders, ruling in favor of the appellant. The demand for the reversal of CENVAT credit on defective imported inputs ... Reversal of CENVAT credit - whether the appellant while clearing the imported inputs which were found to be defective and unusable and later re-exported from their premises, is required to pay an amount equal to the credit availed on such inputs as per Rule 3(5) of the Cenvat Credit Rules, 2004 - Held that:- In the instant case, the imported inputs were directly used and found to be defective and not upto the appellant's quality parameters. The impugned order is liable to be set aside for the reason that in the Board's circular No.283/117/96 dated 31.12.1996 it has been clearly stated that the credit availed on inputs which are re-exported as such under Bond need not be reversed. The issue being covered by the judgment in the case of Zydex Industries [2007 (4) TMI 545 - CESTAT, AHMEDABAD ], the demand for the availment of cenvat credit which is alleged to be incorrect is unsustainable - Decided in favour of assessee Issues:1. Availing CENVAT credit on defective imported inputs and subsequent re-export.2. Contravention of provisions under CENVAT Credit Rules and Central Excise Act.3. Reversal of credit on defective imported inputs.4. Applicability of circulars and legal judgments on the case.5. Plea of limitation in one of the appeals.Issue 1: Availing CENVAT credit on defective imported inputs and subsequent re-export:The appellant company imported steel tyre cord and X-ray tube, availed CENVAT credit, but found them defective and decided to re-export the remaining quantities. The dispute revolved around whether the appellant was required to pay back the credit availed on the rejected inputs upon re-export.Issue 2: Contravention of provisions under CENVAT Credit Rules and Central Excise Act:Allegations were made by the department that the appellant contravened Rule 3(5) of the CENVAT Credit Rules, 2004, and provisions under Section 11A(1)/11A(4) of the Central Excise Act, 1944. Penalties were proposed based on these alleged contraventions.Issue 3: Reversal of credit on defective imported inputs:The adjudicating authority ordered the reversal of the CENVAT credit availed on the rejected inputs, along with interest and penalties. The appellant challenged this order, leading to appeals before the Ld. Commissioner (Appeals) and subsequently before the Tribunal.Issue 4: Applicability of circulars and legal judgments on the case:The Tribunal analyzed various circulars, including Circular No. 283/117/96 and subsequent Circular No. 345/2/2000-TRU, along with legal judgments like the case of Zydex Industries and M/s KCP Limited Vs CCE. The Tribunal found that the appellant's case aligned with the principles established in these circulars and judgments.Issue 5: Plea of limitation in one of the appeals:In one of the appeals, a plea of limitation was raised, questioning the timing of bringing relevant facts to the department's knowledge. The Tribunal examined this plea alongside the merits of the case.In conclusion, the Tribunal set aside the impugned orders, citing the alignment of the appellant's case with established circulars and legal precedents. The demand for the reversal of CENVAT credit was deemed unsustainable, and penalties imposed were also set aside. The Tribunal allowed the appeals with consequential relief, emphasizing the absence of duty implication and obviating the need for penalties in such circumstances.