2016 (12) TMI 30 - AT - Central Excise

Tribunal Allows Appeals Over Input Diversion, Retained Scrap Use

Bharat Heavy Electricals Ltd. Bharat Heavy Electricals Ltd. Versus CCE & ST, Bhopal

Bharat Heavy Electricals Ltd. Bharat Heavy Electricals Ltd. Versus CCE & ST, Bhopal - TMI Issues Involved:1. Whether there is a violation of provisions of Cenvat Credit Rules, 2004 due to non-returned inputs supplied to job workers by the principal manufacturer.2. Whether the job workers retained scrap/off-cuts for further manufacturing and if such retention justifies the availed credit by the principal manufacturer.3. Whether the off-cuts and scrap generated during the manufacturing process at the job worker's end can be considered as 'inputs as such' and if there is a need for quantification of cenvat credit to be reversed by the principal manufacturer.Issue 1: Violation of Cenvat Credit RulesThe case involved BHEL, a principal manufacturer, supplying copper rods to job workers for further manufacturing. The department alleged that BHEL did not receive back the inputs fully, leading to a demand for recovery of cenvat credit. The impugned order confirmed a demand of cenvat credit amounting to a specific sum for a particular period, along with penalties and confiscation of seized goods at the job worker's premises. The argument centered around the non-returned inputs and the violation of Cenvat Credit Rules.Issue 2: Retention of Scrap/Off-Cuts by Job WorkersThe appellant's counsel argued that as per the Standard Rate Contract, job workers retained waste and scrap generated during job work for further manufacturing, which was duly cleared on payment of central excise duty. The appellant contended that there would be an inevitable loss of metal during the manufacturing process, and the retained scrap was utilized for producing final products. The job workers' use of scrap/off-cuts for further manufacturing, cleared with excise duty payment, was highlighted to justify the retention and utilization of such materials.Issue 3: Consideration of Off-Cuts and Scrap as InputsThe Tribunal analyzed the process loss and scrap generation during the manufacturing process at the job worker's end. It was observed that the off-cuts and scrap, which did not meet the principal manufacturer's specifications, were retained by job workers for further manufacturing of different items. The Tribunal found no evidence to consider the resultant off-cuts and scrap as 'inputs as such' at the job worker's end. The lack of cross-examination on the manufacturing process and the utilization of waste products for further manufacturing, which attracted excise duty, led to the Tribunal setting aside the impugned order.In conclusion, the Tribunal allowed the appeals, noting that there was no diversion of inputs or unaccounted clearance, and the retained scrap/off-cuts were utilized for further manufacturing of items subject to excise duty. The decision emphasized the absence of evidence to support the reversal of cenvat credit availed by the principal manufacturer, ultimately setting aside the impugned order.