2006 (5) TMI 23 - AT - Central Excise

Central Excise Department order to reverse Cenvat credit taken on defective/returned final product and by the processing of which the scrap was produced should have cleared without payment of duty set aside

Summary

Issues:
1. Whether the activity undertaken by the appellants on their defective final products amounts to "manufacture" under Rule 16 of Central Excise Rules, 2002.
2. Applicability of a previous Tribunal decision in a similar case involving returned defective goods.
3. Interpretation of relevant rules in force during the period of dispute.

Issue 1 - "Manufacture" under Rule 16 of Central Excise Rules, 2002:
The appellants, manufacturers of moulded rubber products, reprocessed defective goods returned by buyers, resulting in only scrap. The department contended that this did not amount to "manufacture," requiring reversal of Cenvat credit and duty payment on the scrap. The appellants argued that the process constituted "manufacture" as it involved normal manufacturing activities. Lower authorities disagreed, demanding duty equivalent to the Cenvat credit. However, referring to a similar case, the Tribunal found that the process of reprocessing defective goods can be considered "manufacture" under Rule 16, allowing the removal of scrap on payment of duty after availing Cenvat credit on the defective goods.

Issue 2 - Applicability of Previous Tribunal Decision:
The Tribunal cited a previous case involving TATA SSL Ltd., where a similar situation arose with defective goods returned by buyers. In that case, the Tribunal ruled in favor of the assessee, allowing the removal of scrap on payment of duty after reprocessing defective goods. This precedent supported the appellants' argument that their activity constituted "manufacture," leading to the reversal of the duty demand.

Issue 3 - Interpretation of Relevant Rules:
The department argued that the previous Tribunal decision was not directly applicable due to different rules in force during the respective periods. However, the Tribunal noted that the key issue was whether the process undertaken on defective goods amounted to "manufacture." By relying on the finding that the process resulted in scrap after further processing, the Tribunal concluded that the activity fell within the definition of "manufacture" under Rule 16. Therefore, the appellants were entitled to remove the scrap on payment of duty, utilizing the Cenvat credit on the defective goods.

In conclusion, the Tribunal overturned the lower authorities' decision, allowing the appellants to clear the scrap on payment of duty after reprocessing defective goods, considering the activity as "manufacture" under Rule 16 of the Central Excise Rules, 2002.