SUNDARAM INDUSTRIES LTD. Vs. CCE

JUDGEMENT

(1.) THE appellants are manufacturers of moulded rubber products. During the period January -June 2003, some of these products were found defective and returned by the buyers, whereupon the appellants took Cenvat credit of the duty originally paid on the goods, and reprocessed the goods, which, activity however yielded only scrap. This scrap was cleared on payment of duty. According to the department, the activity undertaken by the appellants on their defective final products did not amount to "manufacture" as it yielded only scrap and, therefore, in terms of Rule 16 of Central Excise Rules, 2002, they should have reversed the credit taken on the defective final products and should have cleared the scrap without payment of duty. According to the appellants, the above process cannot be anything other than "manufacture" inasmuch as the defective goods returned by their buyers were put to the normal process of manufacture. The process would not cease to be "manufacture" merely because it did not result in the production of the intended final product. This view of the appellants was rejected by the lower authorities and an amount of duty equivalent to the Cenvat credit in question was demanded.

(2.) AFTER hearing both sides and considering their submissions, I find that, on a similar set of facts, this Tribunal has decided in favour of the assessee in the case of Commissioner v. Tata SSL Ltd. 2005 (191) ELT 799 (Tri -Mumbai). In that case, the respondents manufactured and cleared their final product (iron and steel wires) on payment of duty. The goods received by some of their buyers were found defective and hence returned. Upon receipt of such goods, the respondents took credit of the duty paid originally and put the goods to further process. As they found it impossible to get the intended product, they removed the material as scrap on payment of duty. The original authority held that the assessee ought to have reversed the credit taken and to have cleared the, scrap without payment of duty. This view was reversed by the first appellate authority which accepted the assessee's contention. The appellate Commissioner's order was upheld by the Tribunal also. 3. Ld.SDR submits that the Tribunal's decision in TATA SSL Ltd. (supra) pertains to the period April'96 to March'99 and, therefore, the same cannot be applied to the present case, wherein the period of dispute is January -June 2003. It is pointed out that Rule 16 ibid, which is applicable to the present case, is not relevant to the cited case. Ld.SDR contextually refers to Rules 173H and 173L which were in force during the period of dispute involved in the cited case. I, however, find that, in the cited case, the department was invoking Rule 57F (3) and not any of the rules presently cited by Id.SDR. The fact highlighted by Id.SDR is that the defective goods returned by the appellant's customers did not undergo any process amounting to "manufacture" inasmuch as only "scrap" resulted from that process. This submission has to be examined in the light of a crucial finding of fact recorded by the Tribunal in TATA SSL's case, which reads thus : ... What is ultimately cleared from the factory is scrap resulting out of further processing of rejected wire. I am inclined to follow this finding. Accordingly, in the instant case, it has to be held that the "process" undergone by the defective/returned final product amounted to "manufacture" though it resulted in scrap. On this fact, Rule 16 ibid gets attracted and it was open to the appellants to remove the scrap on payment of duty, after availing Cenvat credit on the defective/returned final product, by the processing of which the scrap was produced. In the result, the impugned order gets set aside and this appeal is allowed.