2010 (5) TMI 212 - AT - Customs

Appellate Authority Denies Cenvat Credit for Imported Sugar Packing Materials

JK. SUGAR LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MEERUT-II

The appellate authority upheld the denial of Cenvat credit for duty paid on PP woven bags used for packing imported raw sugar, stating that the packing ... Cenvat/Modvat-Packing Material- . The appellants imported raw sugar in February, 2005 through Kandla Port. The appellants took credit of Central Excise duty paid on PP woven bags used for packing the raw sugar imported. The original authority in pursuance of the show cause notice held that they are not eligible for the credit and accordingly, ordered recovery of duty of Rs. 77,813/- along with interest and imposed equal amount as penalty. Commissioner (Appeals) has upheld the order of the original authority. Held that- use of inputs in the factory of production is a must. In this case, the packing materials claimed to be inputs has been used at Kandla and the officers have no means of verifying the relevant details which were required for the purpose of extending the Cenvat credit. Commissioner (Appeals) in upholding the denial of credit and demand of duty along with interest are justified. However, since the matter involved interpretations of the provisions of Cenvat Credit Rules, there being no suppression, misstatement on the part of the appellants, there is no justification for imposition of penalty. Issues:1. Eligibility of Cenvat credit for duty paid on PP woven bags used for packing imported raw sugar.2. Interpretation of Rule 2(k) of the Cenvat Credit Rules, 2004 regarding the use of inputs in the factory of production.3. Comparison of previous judgments on the treatment of packing materials as inputs for the manufacture of final products.Detailed Analysis:1. The appeal revolved around the eligibility of Cenvat credit for duty paid on PP woven bags used for packing imported raw sugar. The appellants argued that raw sugar is an input, and the bags were used for packing the raw material, making them eligible for credit. They relied on various precedents, including a Tribunal decision and a Supreme Court ruling, to support their claim. However, the Commissioner (Appeals) upheld the denial of credit, stating that the packing materials used outside the factory of production did not meet the criteria for credit under the Cenvat Credit Rules.2. The interpretation of Rule 2(k) of the Cenvat Credit Rules, 2004 was crucial in determining the eligibility of the appellants for Cenvat credit. The rule specifies that the use of inputs in the factory of production is essential for claiming credit. The learned SDR emphasized this point, arguing that the packing materials were used at Kandla Port, making it difficult for the officers to verify the details necessary for extending the Cenvat credit. The appellate authority noted that the packing materials used for raw material could not be considered as inputs for the final products, leading to the denial of credit.3. The comparison of previous judgments played a significant role in the decision-making process. The appellate authority distinguished the present case from precedents where packing materials were considered inputs for final products. The judgment highlighted that the packing materials used for raw material outside the factory of production did not qualify as being 'used in relation to manufacture' of final products. While the appellants cited various cases to support their claim, the appellate authority found that the facts of those cases were different from the current scenario. Ultimately, the denial of credit and the demand for duty with interest were upheld, but the imposition of a penalty was deemed unjustified due to the absence of suppression or misstatement by the appellants.