Tribunal decision: Cenvat credit allowed, inspection charges denied. Director's penalty set aside.

The Tribunal partially allowed the Company's appeal by holding the denial of Cenvat credit on bought out drums as inadmissible and setting aside the demand on third-party inspection charges. The demand for the removal of drums as samples was upheld, but the penalty on the Director was set aside. The penalty on the appellant under Section 11AC was upheld as the samples cleared were dutiable. The Tribunal fully allowed the Director's appeal.

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Issues involved:
1. Denial of Cenvat credit on bought out drums after coating and painting.
2. Demand of duty on third-party inspection charges.

Analysis:
1. Denial of Cenvat credit on bought out drums:
The appellant argued that although the activity of coating and painting the drums may not amount to manufacturing, they cleared the goods after paying duty, making the Cenvat credit admissible. Citing relevant judgments, the appellant contended that once duty is paid, Cenvat credit cannot be denied. The Tribunal agreed, noting that Rule 16 of Central Excise Rules, 2002 permits availing credit on bought out drums and clearing them after coating and painting. Therefore, the denial of Cenvat credit on bought out drums was held inadmissible.

2. Demand of duty on third-party inspection charges:
Regarding the demand on inspection charges, it was clarified that such charges were incurred only when buyers requested inspection for their purposes. In cases where no inspection was conducted or charges were not recovered from buyers, no duty was demanded. Citing precedent judgments, the Tribunal ruled that inspection charges by third parties, at the request of buyers, should not be included in the assessable value. Consequently, the demand on inspection charges was set aside.

3. Demand on removal of drums as samples and penalty on Director:
The appellant did not contest the demand of &8377; 7,563 for the removal of drums as samples, which was upheld. However, the penalty on the Director was set aside due to the absence of malafide intention and the involvement of an issue of law interpretation.

4. Penalty on the appellant:
The penalty imposed on the appellant under Section 11AC was deemed maintainable as the samples cleared were dutiable, and the appellant knowingly cleared the drums without paying duty. Thus, the penalty corresponding to the demand of &8377; 7,563 was upheld.

In conclusion, the Tribunal partially allowed the appeal of the Company and fully allowed the Director's appeal, based on the detailed analysis and findings on each issue presented before the Appellate Tribunal CESTAT AHMEDABAD.

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