2005 (7) TMI 164 - AT - Central Excise

Tribunal Affirms Flexibility in Rule 16, Grants Cenvat Credit for Returned Goods, Overturns Duties and Penalties.

The Tribunal set aside the impugned orders, allowing the appeal and granting consequential relief to the appellant. It concluded that Rule 16 of the ... Cenvat/Modvat - Returned goods - demand of duty - HELD THAT:- As seen that the rules provide for bringing the goods to the factory for being re-made, refined, re-conditioned or for any other reason. Apart from the fact that the expression 'remade' as appearing in erstwhile Rule 173C was construed by the Tribunal as of wider import covering the process of 're-manufacture' in the case of Triveni Sheet Glass Works Ltd.[1992 (6) TMI 40 - CEGAT, NEW DELHI-LB] it is also noticed that the words 'or subjected to any other similar process in the factory' as appearing in the erstwhile Rule 173C are replaced by the expression 'or for any other reason' in new Rule 16 of Central Excise Rules, 2002 covering the identical situation. The expression as appearing in Rule 16 is definitely of wider connotation. As such, it can be safely concluded that the rule does not require remanufacturing of goods exclusively out of the returned goods. The Commissioner (Appeals) has objected to the credit on the ground that the defective goods, after being cut into pieces has been mixed with the fresh raw material. However, reading of Rule 16 does not lay down any such debarring condition. It has been classified by the appellant that the fresh goods after having been manufactured have been cleared on payment of duty in terms of the provisions of Rule 16(2). My attention has also been drawn to some orders passed by the Commissioner (Appeals) in the appellant's other units situated at other places, where in similar set of facts and circumstances, Modvat credits has been allowed. No appeals have been filed by the Revenue against such orders. Thus, I set aside the impugned orders and allow the appeal with consequential relief to the appellant. Issues:Cenvat credit availed on returned damaged furniture, interpretation of Rule 16 of Central Excise Rules, rejection of credit claim by authorities, imposition of duty and penalty, reliance on previous judgments, applicability of remanufacturing condition, comparison with similar cases in other units.Analysis:The judgment dealt with the issue of Cenvat credit availed by the appellant for damaged furniture returned by customers. The appellant contended that the credit was permissible under Rule 16 of Central Excise Rules, 2002, as the returned goods were accompanied by relevant documents and could be considered as inputs. They cited Tribunal judgments to support their claim. However, the authorities rejected the claim, imposed duty, and penalties, citing the appellant's manufacturing process involving a mix of returned goods and fresh raw material. The Commissioner (Appeals) upheld the rejection, emphasizing the manufacturing of new products from the mix. The appellant's advocate highlighted Rule 16, emphasizing its allowance of credit for goods brought back to the factory for various reasons, without specifying the source of documents accompanying the goods. The rule's language indicated a broader interpretation, not limited to remanufacturing exclusively from returned goods, contrary to the Commissioner's objection.The appellant also pointed out favorable orders in similar cases in their other units where Modvat credits were allowed, with no Revenue appeals filed against those decisions. Considering these arguments and the wider scope of Rule 16, the judgment set aside the impugned orders, allowing the appeal and granting consequential relief to the appellant. The decision emphasized the rule's flexibility in allowing credit for goods brought back to the factory for various reasons, without mandating exclusive remanufacturing from returned goods. The comparison with similar cases in other units further supported the appellant's position, leading to the rejection of the authorities' decision and the grant of relief to the appellant.