2022 (6) TMI 1177 - AT - Central Excise

Tribunal rules in favor of appellant, finds no liability for payment on drum clearance.

The tribunal ruled in favor of the appellant, stating that the appellant is not liable to make any payment on the clearance of empty drums, overturning ... Reversal of cenvat credit on clearance of empty packaging - Rule 6(3) of the Cenvat Credit Rules, 2004 - liability on clearance of non-excisable empty containers/drums - empty containers/drums not arising out of manufacturing process - scope of 'exempted goods' and 'final products' in Rule 2 for applicability of Rule 6 - precedent value of judicial decisions and administrative circulars on treatment of empty containersReversal of cenvat credit on clearance of empty packaging - Rule 6(3) of the Cenvat Credit Rules, 2004 - liability on clearance of non-excisable empty containers/drums - empty containers/drums not arising out of manufacturing process - scope of 'exempted goods' and 'final products' in Rule 2 for applicability of Rule 6 - Whether appellant is liable to pay amount under Rule 6(3) on clearance of empty packaging drums of cenvatable input treated as non-excisable goods. - HELD THAT: - The Tribunal considered that the lower authorities imposed demand solely on the premise that empty drums of cenvatable input are non-excisable goods and therefore attract reversal at the rate prescribed by Rule 6(3). It relied on earlier Tribunal and higher court authorities which held that empty packaging/containers in which inputs are received do not arise out of the manufacturing process and hence do not fall within the concepts of 'exempted goods' or 'final products' as defined in Rule 2. Explanation (1) to Rule 6(1) applies only to goods that are defined under those clauses and thus to goods arising from manufacture; Explanation (2) relates only to valuation where Explanation (1) applies. The Tribunal noted judicial precedents, including the Supreme Court's treatment that there is no specific rule levying duty on such drums and administrative circulars which had clarified that duty would not be payable when such empty containers are cleared from the factory. The Tribunal also referred to a High Court decision applying the same principle to analogous material. Applying these authorities to the facts, the Tribunal concluded that empty packaging drums cleared after emptying inputs are not subject to reversal under Rule 6(3) because they do not qualify as goods arising out of manufacture and therefore the demand is unsustainable.Demand under Rule 6(3) in respect of clearance of empty drums is not sustainable; the impugned order is set aside and the appeal is allowed.Final Conclusion: On the facts and in view of binding and persuasive authorities and administrative instructions, empty packaging drums in which cenvatable input was received do not attract reversal under Rule 6(3) of the Cenvat Credit Rules, 2004; the demand and the impugned order are set aside and the appeal is allowed. Issues involved:Whether the appellant is required to pay 6% under Rule 6(3) of the Cenvat Credit Rules, 2004 on empty packaging drums of cenvatable input as non excisable goods.Analysis:Issue 1: Liability to pay 6% under Rule 6(3) of Cenvat Credit Rules, 2004The appellant contended that the empty drums are not generated during the manufacturing process and are cleared after emptying the inputs, thus not liable for payment under Rule 6(3). The tribunal referred to a previous judgment in a similar case and analyzed the definitions of 'exempted goods' and 'final products' under Rule 2 of the Cenvat Credit Rules. It was concluded that since the packaging material did not arise from any manufacturing process, it did not fall under the definitions provided in the rules. The tribunal also cited a Supreme Court case and circulars issued by the Government of India supporting the non-levy of duty on such empty containers. The tribunal further referred to a judgment of the Allahabad High Court on a similar issue, emphasizing that in the absence of the material being a final product, the obligation of reversal of Cenvat Credit under Rule 6 was not applicable. Based on the detailed analysis and precedents, the tribunal held that the demand under Rule 6(3) was not sustainable, setting aside the impugned order and allowing the appeal.Conclusion:The tribunal ruled in favor of the appellant, stating that the appellant is not liable to make any payment on the clearance of empty drums, overturning the impugned order.This comprehensive analysis of the judgment delves into the legal intricacies and precedents cited to arrive at a well-reasoned decision regarding the liability of the appellant under Rule 6(3) of the Cenvat Credit Rules, 2004 for empty packaging drums of cenvatable input.