2021 (11) TMI 298 - AT - Central Excise

Recovery of CENVAT Credit - finished goods returned back on rejection by their customers on detection of certain defects - rejected goods beyond repair - levy of interest u/r 14 of CER read with section 11AB of CEA - levy of penalty u/r 15 (2) of CENVAT Credit Rules 2004 read with section 11AC of the Central Excise Act 1944 - HELD THAT - There seems to be no dispute on the issue involved in the matter. For the past period in the appellants own case KALYANI FORGE LIMITED VERSUS COMMISSIONER OF C. EX. PUNE-III 2006 (12) TMI 338 - CESTAT MUMBAI referred to by the authorized representative tribunal while dismissing the appeal filed by the appellants held that the process of subjecting the returned goods to further inspection and test would result in process of manufacture of goods returned to the customer once again on payment of duty. Reliance also placed in the case of COMMISSIONER CENTRAL GOODS AND SERVICE TAX COMMISSIONERATE VERSUS M/S INTERNATIONAL TOBACCO CO. LTD. R.K. GUPTA 2019 (12) TMI 336 - ALLAHABAD HIGH COURT where it was held that Clearly the goods were not brought back to the factory by the assessee to be re-made refined re-conditioned 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. There are no merits in the submissions made by the appellants challenging the penalty imposed on them - appeal dismissed.

Summary

Issues Involved:
1. Confirmation of CENVAT Credit demand.
2. Demand for interest on the CENVAT Credit.
3. Imposition of penalty under Rule 15(2) of CENVAT Credit Rules, 2004.

Detailed Analysis:

1. Confirmation of CENVAT Credit Demand:
The appellants, manufacturers of excisable goods, received back their finished goods due to defects and took CENVAT credit against these returned defective goods. They scrapped the rejected goods on which CENVAT was taken. A show cause notice dated 06.01.2012 demanded the recovery of Rs. 2,44,406/- under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 and Rule 16(1) of the Central Excise Rules, 2002. The Deputy Commissioner confirmed the demand, which was upheld by the Commissioner (Appeals). The Tribunal referred to previous decisions in Kalyani Forge Limited and International Tobacco Co Ltd., which held that scrapping does not fall within the ambit of Rule 16(1). The Tribunal concluded that the appellants are not eligible for the credit, thus confirming the demand.

2. Demand for Interest on the CENVAT Credit:
The show cause notice also demanded interest on the CENVAT Credit under Rule 14 of CENVAT Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944. The appellants did not dispute the demand for duty and interest but requested the setting aside of the penalty. The Tribunal, referencing the decisions in Hindalco Industries, S & H Gears Pvt Ltd, and Shimoga Technologies Ltd., found no merit in the appellants' submission. Consequently, the demand for interest was upheld.

3. Imposition of Penalty under Rule 15(2) of CENVAT Credit Rules, 2004:
The Deputy Commissioner imposed a penalty of Rs. 2,44,406/- under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. The appellants argued against the penalty, citing previous judgments. However, the Tribunal, referencing the decision of the Hon’ble Allahabad High Court in International Tobacco Co Ltd., held that scrapping does not qualify under Rule 16(1) and thus does not entitle the appellants to CENVAT credit. The Tribunal also referenced the Supreme Court's decision in Rajasthan Spinning and Weaving Mills, affirming the penalty imposed due to the appellants' intent to illegally avail CENVAT credit.

Conclusion:
The Tribunal dismissed the appeal, confirming the demand for CENVAT credit and interest, and upheld the penalty imposed on the appellants. The decision was pronounced in the open court.