Judgment:
The appellant are in appeal along with stay application.
2. After hearing both the sides, it is observed that the appeal itself can be disposed of at this stage. Therefore, after waiving the requirement of pre-deposit, the appeal is taken up for disposal.
3. The facts of the case are that the appellant are manufacturers of steel tubes and its components falling under Chapter 73 of the Central Excise Tariff Act, 1985. The goods were cleared on payment of duty. Later on, the goods cleared by the appellant were returned by their customers as defective. At the time of receipt of these defective goods, although the appellant is entitled to avail credit on these goods, they did not avail the same. Some of the goods returned by the customers were repairable which were repaired and cleared on payment of duty. The goods which were not repairable were sold by the appellant as scrap. On goods which were sold by the appellant as scrap, the appellant availed credit of duty by following the procedure under Rule 16 of the Central Excise Rules, 2002 wherein it is stated that the assessee can avail credit of duty paid by him on clearance of goods which were returned back as defective by their customer. A show cause notice was issued for demand of duty on this availment of CENVAT credit under Rule 16 of Central Excise Rules, 2002. Both the lower authorities confirmed the duty along with interest and penalty. Therefore the appellant are before me.
4. Shri Mihir Deshmukh advocate/learned counsel appeared on behalf of the appellant and submitted that as per Rule 16 of the Central Excise Rules 2002, the appellant are entitled to take credit on defective goods received back in their factory, on which they have paid duty at the time of clearance. There is no time limit prescribed for availing the credit. Therefore, they can take the credit at any point of time. Denial of credit is not proper and therefore, the impugned order is to be set aside.
5. On the other hand, the learned AR strongly oppose the contention of the learned counsel and submitted that as per Rule 16 of the Central Excise Rules 2002, on the goods received back in their factory, the appellant has to take credit immediately, which they have not taken at the time of receipt of the goods. Therefore, they are not entitled take credit at a later stage.
6. Heard both the sides. After hearing both the sides, I find that the issue relates to, at which point of time the appellant are entitled to take credit on the goods returned as defective which were cleared by the appellant on payment of duty under Rule 16 of the Central Excise Rules, 2002. For better appreciation Rule 16 of the Central Excise Rules, 2002 are reproduced hereunder:
“RULE 16 - Credit of duty on goods brought to the Factory: - (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.
[Explanation. - The amount paid under this sub-rule shall be allowed as CENVAT credit as if it was a duty paid by the manufacturer who removes the goods.]
(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.”
7. On going through the provisions of Rule 16 of the Central Excise Rules 2002, the appellant is entitled to take credit of duty paid by him at the time of clearance of the goods received back by him as defective. There is no time limit under Rule 16 ibid. Therefore, the contention of the learned AR is not acceptable. As the appellant are entitled to take credit as per Rule 16 of the Central Excise Rules 2002, therefore, they have taken credit correctly.
8. In view of these observations, the impugned order is set aside and the appeal is allowed with consequential relief, if any. The stay application also disposed of accordingly.