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M/s. Tata Cummins Ltd. Versus CCE, JSR

2015 (9) TMI 1079 - CESTAT KOLKATA

CENVAT Credit - Credit availed in respect of defective goods - Held that:- When inputs are defective on account of supplier s fault then the same are rejected and sent back to the supplier by reversing the CENVAT Credit. The remaining inputs have to be treated as inputs cleared for manufacture of the finished goods a negligible part of which become damaged during the course of assembly of finished goods. Percentage of such loss is only 0.28 to 0.49% of the total value of the inputs/parts utilize .....

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s until detected by the department. Therefore, extended period will be applicable for the demand of ₹ 8,65,408/- and penalty under Section 11AC of the Central Excise Act, 1944, read with relevant CENVAT Credit Rules, is imposable. However, no option of 25% reduced penalty was extended to the appellant by the Adjudicating authority. - As penalty under Section 11AC of the Central Excise Act, 1944 has been upheld the other penalty of ₹ 5,00,000/- imposed upon the appellant is set aside .....

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ssioner, Central Excise, Jamshedpur confirmed demands of ₹ 8,65,408/- & ₹ 1,08,88,453/- regarding inadmissible CENVAT Credit, alongwith interest. Penalties were also imposed upon the appellant under Section 11AC of the Central Excise Act, 1944; read with Rule 57AH(2) of the Central Excise Rules, 1944 & Rule 13(2) of the CENVAT Credit Rules, 2001/2002 and Rule 173Q of Central Excise Rules, 1944 & Rule 13(1) of Central Excise Rules, 1001/2002. 2. Shri Ravi Raghavan (Advocat .....

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1,08,88,453/- is denied by the Adjudicating authority on the ground that certain inputs are scrapped during the manufacturing process and that the same are not used in or in relation to the manufacture of the finished goods. It was strongly argued by the learned Advocate that appellant follows an internal audit procedure by which if inputs are found defective at the time of receipt or during quality check then such inputs are sent back to the vendors and equivalent credit taken is also reversed .....

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gh the table given in the end of para-11 of the Order-in-Original dated 30.09.2005 that such waste comes to only 0.28 to 0.49% of the total value of the inputs/parts. Learned Advocate relied upon the following case laws/circular in support of his arguments.:- (i) Asahi India Safety Glass Ltd. v. UOI [2005 (180) ELT 5 (Del.) affirmed by Apex Court as report at 2015-TIOL-129-SC-CX (ii) CCE, Bangalore-I v. Geltec Ltd. [2012 (281) ELT 170 (Kar.) affirmed by Apex Court as reported at [2014-(304) ELT .....

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cation order. He made the Bench go through para-11 (iii), (iv) & (v) of the Order-in-Original dated 30.09.2005 passed by the Adjudicating authority. That scrap generated during the course of manufacture cannot disentitle CENVAT Credit on these inputs from which such scrap has been generated during assembly of engines. 2.2 Learned Advocate also argued that the entire demand is time barred as extended period is not invokable. It was his case that as per Rule-173B declaration filed with the dep .....

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ellant. 3. Shri A.Roy, Supdt.(AR) appearing on behalf of the Revenue argued that the defective nature of the inputs is known to the appellant at the time of receipt itself as observed by adjudicating authority in para 15(iii) of the order and hence credit has been correctly denied. With respect to credit of ₹ 8,65,408/- on shortage of inputs it was argued by learned AR that appellant was aware of these shortages as per the physical verification of their own auditors but appellant did not r .....

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are known to be defective on receipt and cannot be taken to have been used in the manufacture of the appellants. Appellant has taken following arguments before the Adjudicating authority, as per para 11(iii), (iv) & (v) of the Order-in-Original dated 30.09.2005, which are reproduced below:- (iii) The manufacturing process of their plant is as under : The manufacturing of engines consists of assembling and up-liftment of multiple components (ranging from 350 to 500 components). During the pro .....

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during assembly. (iv) However, in case it is found that the components got damaged at the time of handling/fitment in engines during assembly then the same are scrapped by generation of Scrap Ticket No.(STN). Then these components are destroyed/cut to pieces and sent to specified scrap yard. Thereafter, the same is removed as waste and scrap on payment of Excise duty on assessable value of the same in accordance with Sec.4 through proper excise invoice under Rule 11 of the Central Excise Rules, .....

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to the supplier by reversing the CENVAT Credit. The remaining inputs have to be treated as inputs cleared for manufacture of the finished goods a negligible part of which become damaged during the course of assembly of finished goods. Percentage of such loss is only 0.28 to 0.49% of the total value of the inputs/parts utilized by the appellant. The same is also converted into scrap by the appellant and sold on payment of duty. 4.2 Appellant has relied upon the case of Asahi India Safety Glass L .....

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may be that from one sheet six pieces are to be manufactured as safety glass and if in a portion where bubble is noted it does not mean that five glass pieces cannot be manufactured. Before lamination the 6th piece which may be defective will be left out. From this it cannot be said that the entire sheet of glass was not under process of manufacture. Cutting, marking, breaking, grinding and washing with demineralised water, are different stages of manufacturing process. If the float glass is not .....

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rs. Thus input has undergone certain process of manufacture. 30. If a sheet is rejected or a piece of sheet is? rejected, it does not mean that the sheet was not used in the manufacture of safety glass. It is at this juncture again we emphasise that sub-rule (4) of Rule 57A points out that credit is to be allowed on inputs used in the final product and all inputs used in or in relation to the manufacture of the final products, whether directly or indirectly and whether contained in the final pro .....

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A. 31. In substance, when the material? i.e. glass sheet is used for the manufacturing process and merely because at a later point of time after the glass has undergone the process of manufacture, it was found defective and rejected or part of the input being found defective and rejected is no ground in view of Rule 57A read with Rule 57D to deny the benefit. Though this order was passed with respect to erstwhile Rule 57A and Rule 57D of the CENVAT Credit Excise Rules, 1944, but the ratio laid b .....

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