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of <h1>Court rules scrapping not eligible for CENVAT credit under Rule 16(1) - Unlawful credit availment penalized</h1> <h3>Commissioner, Central Goods And Service Tax Commissionerate Versus M/s International Tobacco Co. Ltd., R.K. Gupta</h3> Commissioner, Central Goods And Service Tax Commissionerate Versus M/s International Tobacco Co. Ltd., R.K. Gupta - 2020 (371) E.L.T. 470 (All.) , [2020] ... Issues Involved:1. Interpretation of Rule 16(1) of the Central Excise Rules, 2002.2. Legitimacy of CENVAT credit availed by the respondent-assessee.3. Justification of penalty imposed on R.K. Gupta under Rule 26 of the Central Excise Rules, 2002.Detailed Analysis:Interpretation of Rule 16(1) of the Central Excise Rules, 2002:The primary issue revolves around the interpretation of Rule 16(1) of the Central Excise Rules, 2002, which allows for CENVAT credit on goods brought back to the factory for being 're-made, refined, re-conditioned or for any other reason.' The court emphasized that the phrase 'or for any other reason' should be interpreted using the ejusdem generis rule, meaning it should be read in the context of the preceding terms 're-made,' 'refined,' and 're-conditioned.' The court held that scrapping does not fall within the ambit of these terms as it involves the destruction of the original identity of the goods, unlike the processes mentioned which retain the essential characteristics of the goods.Legitimacy of CENVAT Credit:The court found that the learned Customs, Excise & Service Tax Appellate Tribunal (CESTAT) had misinterpreted Rule 16(1) by including scrapping within its scope. The court observed that the goods were not brought back to the factory for any of the processes mentioned in Rule 16(1), but were scrapped, which does not qualify for CENVAT credit. The court concluded that the respondent-assessee had unlawfully availed CENVAT credit by misrepresenting the nature of the returned goods and their subsequent processing. The original findings of the assessing officer, which stated that the goods were scrapped and not used as inputs for manufacturing, were upheld.Justification of Penalty on R.K. Gupta:The court examined the imposition of penalty on R.K. Gupta under Rule 26 of the Central Excise Rules, 2002. Rule 26 penalizes individuals involved in activities such as concealing, selling, or dealing with excisable goods liable for confiscation. The court found that the ingredients of Rule 26 were fully satisfied in this case, as R.K. Gupta was responsible for the day-to-day excise matters and was involved in the wrongful availment of CENVAT credit. Consequently, the court held that the penalty imposed on R.K. Gupta by the Commissioner of Customs, Central Excise & Service Tax, Ghaziabad, was lawful and justified.Conclusion:The court answered the substantial questions of law against the respondent-assessee and in favor of the Revenue. It held that the CESTAT had erred in its interpretation of Rule 16(1) and in setting aside the penalty on R.K. Gupta. The judgment of the CESTAT dated 3rd April, 2018, was set aside, and the order of the Commissioner of Customs, Central Excise & Service Tax, Ghaziabad, dated 21st October, 2010, was upheld. Both appeals were allowed.
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