COSMO FILMS LTD. Vs. CCE

JUDGEMENT

(1.) APPELLANT is engaged in the manufacture of BOPP films. In the subject case, the appellant received rejected final products in their factory for reprocessing/manufacture etc. which had earlier been cleared on payment of duty. They availed cenvat credit of the said duty in terms of Rule 16 of the Central Excise Rules, 2002. The said rejected goods were subjected to cutting etc. and as result a portion became waste & scrap and these were accounted in the records together with the scrap generated during the course of manufacture of final products in the factory. The said waste & scrap (both factory generated and made due to cutting etc. of returned rejected goods) was captively consumed to manufacture Reprocessed Granules (RPG). The said granules were either used captively for the manufacture of BOPP films cleared on payment of duty or cleared as such without payment of duty under exemption Notification No. 6/2002 -CE. In respect of the scrap which was used for the manufacture of reprocessed granules cleared without payment of duty, the appellants paid duty at the scrap stage on the basis of scrap value. The department alleged that the waste & scrap cleared on payment of duty at scrap value were made from the rejected finished goods on which cenvat credit was taken and scrapping of the BOPP films by cutting, etc., does not amount to manufacture, by virtue of Rule 16(2) of the Central Excise Rules, 2002, the appellants were required to clear the said waste and scrap on payment of amount equal to the cenvat credit taken on such rejected BOPP films (from which the said scrap was obtained). It is pertinent to note that no demand has been raised on the rejected BOPP film which was first converted into scrap, then to reprocessed granules and finally used for the manufacture of fresh BOPP films cleared on payment of duty. Accordingly, duty demand of Rs. 1,87,059/ - has been confirmed and a penalty of Rs. 25,000 has been imposed on the appellant under Rule 25 of Central Excise Rules, 2002.

(2.) LEARNED advocate Shri J.C. Patel on behalf of the appellants submitted that the contention of the department that process to which the rejected final products are subjected does not amount to manufacture is not correct. The rejected BOPP films received by them are cut and slit and used in the manufacture of granules. He also submits that during the course of manufacture of BOPP film also, rejected BOPP film is generated and there also scrap gets generated . The issue as to whether conversion of BOPP film rejected by customers and received back, would amount to manufacture or not was considered by the Tribunal in the case of Viral Laminates Ltd. v. CCE Ahmedabad reported in : 2002 (143) ELT 143 (Tri. - Mumbai) and the Tribunal had held in favour of the appellants in that case. Further he also relies upon the decision of the Tribunal in the case of Sundaram Industries Ltd. v. CCE Madurai reported in : 2006 (202) ELT 538 (Tri. - Chennai) wherein it was held that reprocessing of rejected goods if yielded only scrap, process would amount to manufacture. In that case it was held that the scrap is removable on payment of duty. In that case it was the argument of the appellant that they were not liable to pay duty on scrap. Reprocessing resulted only in scrap and this cannot be said to be a manufacture. Similar view was taken in the case of TATA SSL Ltd. v. CCE Mumbai reported in : 2005 (191) ELT 799 (Tri - Mumbai).

(3.) I have considered the submissions made by both the sides. As per the provisions of Rule 16 of Cenvat Credit Rules, if the process involved on the rejected goods does not amount to manufacture and if the resultant products are cleared, the Cenvat credit taken on the resulted goods received back is required to be reversed. Therefore, the issue involved in this case is only whether BOPP film cleared by the appellants rejected and received back on which cenvat credit was taken, if cutting and slitting is done on the same and used in the manufacture of granules cleared without payment of duty, whether full cenvat credit is required to be reversed or it would be sufficient if duty is paid on the scrap captively used on the basis of value arrived at on scrap. I find that the issued involved is covered by the decision of the Tribunal in the case of Viral Laminates Ltd. The relevant paragraphs 4 & 5 are reproduced below.