TaxTMI 
TaxTMI 
TaxTMI 
2019 (12) TMI 336
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....), Allahabad, in its order dated 03.04.2018 held that the assessee - respondent is entitled to CENVAT credit and has lawfully taken and utilized CENVAT credit under Rule 16 of the Central Excise Rules, 2002. The Commissioner of Customs, Central Excise & Service Tax, Ghaziabad, had in the Order-in- Original dated 21st October, 2010, found that the assessee had wrongly availed of the CENVAT credit under Rule 16(1) of the Central Excise Rules, 2002 and accordingly ordered recovery of evaded liability and imposed penalty. 4. The connected Central Excise Appeal No.88 of 2019 (Commissioner, Central Goods and Service Tax Commissionerate, Ghaziabad Versus R.K. Gupta) has also been filed against the said judgment and order of the learned Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad, dated 3rd April, 2018, in regard to reversal of the penalty imposed upon Sri R.K.Gupta under Rule 26 of the Central Excise Rules, 2002 by the Order-in-Original dated 21.10.2010. 5. The respondent - assessee is engaged in the manufacture of various brands of cigarettes on job work basis for M/s Godfrey Philips India Limited. During the period under assessment, certain cigarettes manufact....
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....ontested the proceedings. 12. The assessing officer adjudicated the controversy by order dated 21.10.2010 wherein it found in favour of the Revenue and held that the assessee had wrongly claimed CENVAT credit under Rule 16(1) of the Central Excise Rules, 2002 and Sri R.K.Gupta, Deputy General Manager (IT & Accounts) was liable to pay penalty under Rule 26 of the Central Excise Rules, 2002. 13. The assessing officer found that the assessee - respondent had wrongly availed CENVAT credit, amounting to Rs. 6,83,28,039/- (Rupees six crores eighty three lakhs twenty eight thousand thirty nine only) under Rule 16 of the CENVAT Credit Rules, 2004. 14. A penalty to the tune of Rs. 6,83,28,039/- (Rupees six crores eighty three lakhs twenty eight thousand thirty nine only) was also imposed upon the respondent - assessee. 15. A penalty of Rs. 5,00,000/- (Rupees five lakhs only) was imposed on Sri R.K.Gupta in the connected appeal under Rule 26 of the Central Excise Rules, 2002. Sri R.K.Gupta suffered the penalty for his involvement in wrong availment of the above mentioned amount of CENVAT credit in contravention of the provisions of CENVAT Credit Rules, 2004, & Central Excise Act, 1944 an....
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....or the manufacture of fresh cigarettes. It has thus been alleged that all the inputs except tobacco are separated first and disposed off and then only the tobacco portion is used in manufacturing of fresh cigarettes. 6.5 From the above I find that cigarettes received back for refreshing are not put to use as inputs for the manufacture of finished goods. These are actually put to the process of separation of all inputs other than tobacco by method of scrapping and to my opinion, the said process cannot be treated as a manufacturing process. The returned cigarettes as such can also not be treated as inputs as the same cannot be put to use as inputs in the manufacture of cigarettes. I also feel that the use of retrieved tobacco by mixing with fresh tobacco is done by the party with the sole aim to avail credit on returned goods as the value of such tobacco is very low as compared to the credit available to them on returned cigarettes. 6.6 As discussed above, the value of tobacco is comparatively much smaller as compared to the value of all other goods which are scrapped and thrown away without payment of duty. Going into the process of refreshing, I find that the entire material....
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....offices or from clearing and forwarding agents are eligible for credit of duty paid on them originally at the time of their clearance from the factory under the provisions of rule 16 of CER, 2002. I would like to analyze the provisions of this rule under which the impugned credit has been availed by the party. In terms of this rule, goods should be brought back for being re-made, refined re-conditioned or for any other reason and the assessee is entitled to take credit of duty paid if such goods are received as inputs under the Cenvat credit rules, 2002. I find that ITC, in their reply have given force on the words "for any other reason". I find that the availment of Cenvat credit is primarily governed by CCR, 2002/2004 and thus the availment of Cenvat credit provided by any other rule like CER, 2002 cannot be beyond the provisions of Central Credit Rules. Here I also find that in the said rule 16 of CER, 2002, there is clear mention that goods must be received to be used as inputs in term of CCR, 2002. Thus the very first condition for eligibility of credit on returned goods is that the goods must be usable and used as inputs in the manufacture of finished goods. I find that the v....
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....se this credit according to the said rules." 20. Rule 16 states the procedure and eligibility to avail credit of duty on goods brought to the factory. Various ingredients of Rule 16(1) will now be discussed. 21. Rule 16(1) is applicable to goods on which duty had been paid at the time of removal of such goods and the same are brought back to the factory. The goods are brought back to the factory for being "re-made, refined, re-conditioned or for any other reason". The assessee is also required to state the particulars of such receipt of goods in his records. 22. Once the above conditions are fulfilled, the assessee becomes entitled under Rule 16(1) to take CENVAT credit of the duty paid on the returned goods as if such goods are received as inputs under the CENVAT Credit Rules, 2002. The credit shall be utilised by the assessee according to the latter Rules. 23. The purpose of manufacture of goods in this case is sale. Bringing the goods back to the factory after they have been removed for sale does not ordinarily make good business sense. However, at times for some valid reasons, the goods cannot be sold or they are not fit for retention in the market. In such circumstances, t....
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....iginal identity of the goods is retained even after the goods undergo the said processes. 30. When goods are scrapped, all the constituent components of the goods may be reclaimed. After scrapping, the original identity of the manufactured goods completely perishes. Scrapping of goods is done for various purposes, including cannibalisation and extraction of vital or valuable parts of the original goods. 31. "Re-made", "refined" and "re-conditioned" are processes akin to manufacture; while scrapping involves destruction of the original identity of the goods. Scrapping is neither a species nor in the likeness of "re12 made", "refined" or "re-conditioned". Consequently, when goods are scrapped, it cannot be stated that the said goods were brought to the factory for being "re-made", "refined", "re-conditioned", "or for any other reason" provided in Rule 16(1). Scrapping of goods does not fall within the ambit and scope of Rule 16(1). 32. Ordinary business prudence requires that valid commercial reasons must exist for bringing the goods back to the factory. The validity of these reasons is the test of the bona fides of the assessee. These can be ascertained from authentic records, re....
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.... brought back to the factory by the assessee to be "re-made", "refined", "reconditioned", "or for any other reason" as contemplated in Rule 16(1) of the Central Excise Rules, 2002. The transactions were devices to illegally avail CENVAT credit. The intent to illegal avail CENVAT credit and escape duty was fully established. 41. In wake of the preceding narrative, we find that the ingredients to avail credit of duty of goods brought back to the factory, as contemplated under Rule 16(1) of the Central Excise Rules, 2002, were not satisfied. The assessee was not entitled to avail the benefit of CENVAT credit of the duty paid on the aforesaid goods and illegally availed such credit. The intent of the assessee to defraud the revenue and escape tax is thus proved. 42. The controversy in the connected Central Excise Appeal No.88 of 2019 (Commissioner, Central Goods and Service Tax Commissionerate, Ghaziabad Versus R.K. Gupta) in respect of imposition of penalty upon Sri R.K.Gupta turns on the construction of and observance of the ingredients of Rule 26 of the Central Excise Rules, 2002. For facility of reference, Rule 26 is extracted hereunder:- "RULE 26. Penalty for certain offences.....