2025 (8) TMI 995 - AT - Central Excise

Adjudicating order rejecting CENVAT credit on returned goods set aside; Rule 16 satisfied, matter remanded for fresh decision

M/s. Bostik India Private Limited Versus Commissioner of Central Excise, Office of the Commissioner of Central Excise, Bangalore-I Commissionerate

M/s. Bostik India Private Limited Versus Commissioner of Central Excise, Office of the Commissioner of Central Excise, Bangalore-I Commissionerate - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether cenvat credit is admissible under Rule 16 of the Central Excise Rules, 2002 in respect of goods returned by customers and subsequently reused in manufacturing within factory premises. 2. Whether the departmental demand based on the audit observation that returned goods were kept in open area and rendered unfit can be sustained where the assessee maintains records of receipt, processing and clearance on payment of duty. 3. Whether extended/extraordinary period of limitation for recovery of credit is attracted in the facts of the case. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of cenvat credit on returned goods under Rule 16 2.1 Legal framework 2.1.1 Rule 16 of the Central Excise Rules, 2002 permits credit of duty paid on inputs/input services where such inputs are received back as returned goods and subsequently used in manufacture, subject to compliance with specified procedural requirements (receipt, recording, processing and appropriate duty accounting on removal). 2.2 Precedent Treatment 2.2.1 The parties relied on authorities emphasizing that demands founded on assumptions and presumptions are unsustainable; earlier Tribunal and judicial precedents were cited to support allowance of credit where records demonstrate receipt and use. 2.3 Interpretation and reasoning 2.3.1 The Tribunal examined documentary proof relating to specific samples of returned goods. In at least one sample set involving drums returned against a particular invoice, the appellant produced contemporaneous records showing (a) Goods Receipt Note on receipt, (b) infusion of returned material into identified production batches, and (c) subsequent clearance of finished goods on payment of duty via invoices. These documents, the Tribunal found, demonstrate compliance with the Rule 16 procedure and establish actual use of returned goods in manufacture followed by lawful removal on payment of duty. 2.3.2 The Tribunal rejected the department's wholesale reliance on the audit team's observation that goods were kept in open area and thereby rendered unfit, noting factual evidence that returned goods were stored within factory premises for short periods (average 3-4 days), often in robust containers capable of withstanding environmental exposure, and some products are inherently heat-resistant. 2.4 Ratio vs. Obiter 2.4.1 Ratio: Where contemporaneous records demonstrate receipt, processing (infusion into identified batches) and clearance on payment of duty, such evidence establishes admissibility of cenvat credit under Rule 16 for returned goods and precludes denial based on mere audit presumption of deterioration without specific contrary proof. 2.4.2 Obiter: Observations about product-specific heat resistance and general remarks about storage duration (e.g., '3-4 days') are factual/contextual comments supporting the core finding but are not standalone legal propositions. 2.5 Conclusion 2.5.1 Prima facie the appellant's documentary evidence in respect of sample returned goods satisfies the requirements of Rule 16 and defeats the department's presumption that credit was irregular solely because returned goods were allegedly exposed outdoors. The adjudicating authority must examine all submitted evidence sample-wise; accordingly the Tribunal set aside the impugned order and remanded the matter for fresh consideration of the documentary record and factual findings. Issue 2: Validity of demand founded on audit observations / assumptions about storage and usability 3.1 Legal framework 3.1.1 Tax demands must be founded on proved facts and admissible evidence; findings cannot rest on mere presumptions or assumptions where the assessee has produced cogent records demonstrating compliance with statutory procedures. 3.2 Precedent Treatment 3.2.1 Authorities cited by the appellant were relied upon to the extent that they establish the principle that demands based on conjecture or audit presumption without corroborative evidence are unsustainable. 3.3 Interpretation and reasoning 3.3.1 The Tribunal found the adjudicating authority erred in rejecting the appellant's records by substituting an assumption (that open storage rendered goods unusable) for a fact-based enquiry into whether the returned goods were actually reprocessed and cleared on payment of duty. The Tribunal highlighted documentary proof for at least one sample that directly contradicted the presumption of non-usage. 3.4 Ratio vs. Obiter 3.4.1 Ratio: Administrative findings denying credit based on audit remarks about storage conditions cannot be sustained where the assessee furnishes specific records showing receipt, use in manufacture and lawful removal. Such records require ad idem factual appraisal rather than summary disallowance. 3.5 Conclusion 3.5.1 The Tribunal directed reexamination of all documentary evidence and samples by the adjudicating authority and remanded the matter for a fact-specific determination in place of reliance on generalized audit presumptions. Issue 3: Applicability of extended/extraordinary period of limitation for recovery 4.1 Legal framework 4.1.1 Recovery beyond the normal limitation period requires satisfaction of statutory conditions for extension, including a finding of fraud, willful misstatement, or suppression of facts as provided in relevant provisions. 4.2 Precedent Treatment 4.2.1 Parties raised limitation as a defence; the Tribunal noted earlier remands and observations but did not finally adjudicate extended limitation on the record before it. 4.3 Interpretation and reasoning 4.3.1 The Tribunal confined its decision to the sufficiency of documentary evidence and the impropriety of demands based on assumptions. Because the adjudicating authority's findings were set aside and the matter remanded for fresh evidence-based enquiry, the Tribunal did not decide the extended limitation question on the merits. 4.4 Ratio vs. Obiter 4.4.1 Obiter: The Tribunal's non-decision on limitation is procedural-directing reassessment and inviting the adjudicating authority to examine limitation if raised in light of the remanded factual matrix. No binding pronouncement was made on the applicability of extended limitation. 4.5 Conclusion 4.5.1 The question of extended/extraordinary limitation remains open for determination by the adjudicating authority on remand after full appraisal of evidence and factual findings; the Tribunal did not uphold extended limitation on the present record. Cross-reference 5.1 The Tribunal's directions (paras 2.5.1 and 3.5.1) interlink Issues 1 and 2: admissibility of credit and invalidity of audit-based assumptions are addressed together by requiring the adjudicating authority to undertake a sample-wise, document-centric reappraisal. Issue 3 (limitation) is to be considered only after that fact-finding exercise.