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2015 (6) TMI 402 - CESTAT NEW DELHI

2015 (6) TMI 402 - CESTAT NEW DELHI - 2016 (343) E.L.T. 677 (Tri. - Del.) - Denial of MODVAT Credit - Defective goods - inputs found short on the basis of general ledger stock of stock adjustment account - Held that:- On perusal of the Report of Defective Work in this case, the appellant initially availed modvat credit on the inputs/parts of watches, at the time of receipt of the same, before putting to use, the appellant has conducted certain tests to find out whether the inputs to be usable or .....

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uted and on the basis of record it is ascertained that these inputs were issued for manufacturing watches. Therefore, it cannot be said that the inputs were not put to use. Therefore, in terms of Rule 57D of erstwhile Central Excise Rules, 1944, the inputs have become waste during the course of manufacture or used in or in relation not the manufacture of the final product are eligible for modvat credit. - inputs were issued for manufacturing of watches and the same were found defective during th .....

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inputs. It shows that the inputs have been short accounted in some cases and in some other cases the inputs are in excess, therefore, there is no actual shortage of inputs. The shortages and excesses are due to the fact that stock accounting used to be done on weighment basis since the minute inputs ran into millions and physical counting is not possible. The Commissioner has not given any credence to the defence taken by the appellant for shortages of the inputs have not verified the said fact .....

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enalty is not imposable on the appellant. Therefore, I do not find any merit in the impugned order and the same is set aside. - Decided in favour of assessee. - Appeal No. E/1349/2006-EX(SM) - Final Order No. 51721/2015 - Dated:- 27-5-2015 - Hon ble Mr. Ashok Jindal, Member (Judicial),JJ. For the Appellant : Shri B. L. Narsimhan, Advocate For the Respondent : Shri Devender Singh AR ORDER Per Ashok Jindal : The appellant is in appeal against the impugned order wherein the cenvat credit has been d .....

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6 to 1998-99 to deny modvat credit on watch parts to the extent of ₹ 45,90,013/- on the ground that the watch parts were rejected as defective before they were used in or in relation to the manufacture of watches and were destroyed without following the prescribed procedure. Further, credit demand of ₹ 2,34,326/- was also proposed to deny on the ground that the inputs found short on the basis of general ledger stock of stock adjustment account. The adjudication took place and the dem .....

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r - Some of these inputs also got damaged during the process of assembly and are thus rendered waste in the process of manufacture. According to the appellants no cognizance had been taken of this submission by the adjudicating authority. Reference had also been made to the discussion by the adjudicating authority wherein while taking note of the fact that the details given in RDW showed that some inputs became defective during handling of such items, no relief has been given even in respect of .....

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or by product arising during the manufacture of the final product or when the inputs have become waste during the course of manufacture of the final product, the provisions of Rule 57D were applicable. If the inputs are found defective and are not used in the process of manufacture of final products, the benefit of Rule 57D is not applicable to such inputs. Only when the inputs are used in the manufacture of final products and some of those inputs become waste during the course of manufacture o .....

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rd to the specific inputs which had become waste during the course of manufacture of wrist watches. The issue with regard to shortages, may also be examined by the adjudicating authority to whom the matter is being remanded. The procedure adopted for destruction may also be examined by the adjudicating authority after giving an opportunity to the appellants to present their case. 3. In remand proceedings, the Commissioner again disallowed credit of ₹ 42,53,080/- and also imposed equivalent .....

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is contention, he relied on the decision of Hon ble High Court in the case of Asahi India Safety Glass Ltd. Vs. Union of India-2005 (180) ELT 5 (Del.). He further relied on the judgements in the cases of Sudarshan Chemicals Industries Ltd. Vs. CCE-2010 (262) ELT 974 (Tri.Mum.), Flex Engineering vs. CCE-2012 (276) ELT 153 (SC), TataEngg& Locomotive Co.Ltd.-2010 (256) ELT 56 (Bom). He further submits that there was no shortage of inputs as per general ledger stock of stock adjustment account. .....

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the other hand, learned AR strongly opposed the contention of the learned Counsel and submits that the Commissioner has examined the issue in detail and on the basis of report of rejection of defective work came to the conclusion that these inputs were destroyed before putting into the use. He analysed each and every RDW. Therefore, there is no force in the contention of the learned Counsel for availing credit. Hence, the credit has rightly bee denied to the appellant. He further submits that as .....

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led modvat credit on the inputs/parts of watches, at the time of receipt of the same, before putting to use, the appellant has conducted certain tests to find out whether the inputs to be usable or not. The inputs which did not find fit to be used, the appellant has reversed credit thereon. Rest of the inputs which were found were issued by the appellant for processing or assembling of watches, and during the course of manufacture of watches, certain inputs were found defective and during furthe .....

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ect due to the handling of material identifiable by a functional check M-4 Defect due to the design and dimensional problem by a functional check. M-5 Defect due to components fabricated in house plastic/dial shop. M-6 Defects returned to the supplying vendors for salvage/purchase returns. These are returned after debiting/reversing the modvat credit availed or under Rule 57D F1 (ii) Z-1 Defective components taken out from the market returned watches being repaired under Rule 173H. Duty on these .....

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the manufacture of the final product are eligible for modvat credit. In the impugned order, the Commissioner himself observed that the ripping open of manufactured watches also does not appear to be an essential requirement for manufacture this effectively means that the emergence of this waste is either prior or after the manufacturing process. The waste was in the nature of being emanating as a result of Research and Development process which is quite different from manufacturing activity. Th .....

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at glass not found defective per se and after being put on the float table, and after being cut, broken and washed defects were noted on inspection. Therefore, the Hon ble High Court concluded that when float glass has been put to use and it was found defective, modvat credit cannot be denied. 10. Further in the case of Sudarshan Chemicals Industries Ltd. (supra), the Tribunal has held that the credit of duty paid on inputs and capital goods used for research and development activities is admiss .....

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