AUTOLINE Vs. COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR

JUDGEMENT

(1.) THIS appeal arises out of Order -in -Appeal No. P -II/AK/43/2013, dated 13 -6 -2013 passed by the Commissioner of Customs & Central Excise (Appeals), Pune -II. The appellant have filed an application for disposal of its appeal on merits based on the records. Heard the learned AR, Shri Ashutosh Nath, Asstt. Commissioner and perused the appeal records.

(2.) THE brief facts of the case are that the appellant is a manufacturer of automobile components for two, three and four wheelers and is registered with Central Excise Department under the Central Excise Act, 1944. The appellant availed Cenvat credit paid on inputs, input services and capital goods. During the manufacturing process, some inputs get rejected due to deviations, etc. On receipt of the goods in stock, the defective inputs are segregated and returned to the suppliers of the inputs, but some inputs which have been issued for processing are rejected in machining process during the course of manufacture. Such rejected inputs in the course of manufacture, are kept separately, and for the purpose of valuation are valued at a lower rate being rejected goods and not scrap. A show cause notice relating to the period 2010 -11 was issued stating that in the course of scrutiny of records, it was observed in Audit report for the accounting year 2010 -11, that the assessee have shown certain quantity -wise details of input/raw material as 'Process Rejection' and kept in stock as process rejection and it appears that the valuation of these inputs in books of account, such as audited financial statements and tax audit report is done on the basis of the rate applicable for scrap and not at the actual purchase price of such inputs. It was also observed in the show cause notice that during earlier financial year, the appellant was showing the closing stock of inputs under three different heading namely, 'Raw material', 'in process' and 'scrap' in their balance -sheet/Form -3CD reports. However, it was observed that for the financial year 2010 -11, the appellant have changed the practice of showing the scrap inputs in the stated category i.e. 'scrap' and have shown such scrap inputs under the category of 'process rejection'. The appellant was asked to show cause vide notice dated 30 -3 -2012 as to why under provisions of Rule 3(5B) of Cenvat Credit Rules, 2004, for not reversing the Cenvat credit availed on such process rejection, the amount of Cenvat credit availed should not be demanded and recovered along with interest and also proposing to impose penalty under Rule 15 of Cenvat Credit Rules, 2000. By Order -in -Original dated 3 -10 -2012, the show cause notice was adjudicated confirming the proposed demand of Rs. 1,82,750/ - with interest and also penalty was imposed under Rule 15 of Cenvat Credit Rules, 2004. Being aggrieved, the appellant had carried the matter before the Commissioner (Appeals), who vide the impugned order dated 13 -6 -2013 was pleased to reject the appeal, observing that, since the impugned goods (on such rejection) cannot be used in the manufacture of final products, the same cannot be considered as inputs under Rule 3(5B) of Cenvat Credit Rules.

(3.) THE learned AR relies on the impugned order and states that the valuation of inputs in the given facts and circumstances at a lower rate than the purchase value, amounts to writing off partially and accordingly, the impugned order is correct and the same be upheld. He further states that Cenvat Credit Rules defined the inputs and the input means all goods used in the factory for manufacture of final products and where the goods have been rejected in the course of manufacture, such goods cannot be treated as inputs. Having considered the rival contentions, I find that it is necessary to take notice of the provisions of Rule 3(5B), which reads, for ready reference: -