Credit on returned goods to be reversed, if no evidence of process done on returned goods constituting manufacture is produced: CESTAT

THE appellant received defective pipes. After return of defective goods, the appellant took credit of the duty paid earlier and carried out processes such as straightening, dimension checking, heat treatment, lacquer coating etc. and after such process the pipes were cleared on payment of duty on the transaction value by treating the process as manufacture.

The jurisdictional authorities, on scrutiny of records, found that the duty paid by the appellant was less than the amount of cenvat credit availed on the returned goods in terms of Rule16(1) of CER. Therefore, for recovery of differential duty, SCN was issued and which was upheld along with imposition of equivalent penalty.

Since the Commissioner (Appeals) did not find any fault with the order, the appellant is before the CESTAT.

It is submitted that in terms of rule 16(2) of the CER the duty has to be paid u/s 4 of the CEA, 1944 and since the activity undertaken on the returned goods tantamount to manufacture as per Chapter Note No.3 & 4 of Chapter 73, the duty paid on the transaction value is proper and no differential duty demand can survive.

The AR emphasised that the process carried out by the appellant does not amount to manufacture as the defective pipe was received and after rectification the same pipes were returned hence duty equivalent to credit taken was required to be reversed; that no evidence was produced before the lower authority that apart from the process shown in the show cause notice, the process such as galvanizing/redrawing has been carried out by the appellant, therefore, in the absence of any evidence it cannot be accepted that the process carried out by the appellant amounts to manufacture.

The Bench observed –

+ Charges in the show cause notice is that the appellant on the returned goods carried out the processes such as straightening, dimension checking heat treatment, lacquer coating etc. these processes do not amount to manufacture.

+ Claim of the appellant that they have carried out re-drawing of the pipes and also galvanizing process which is only a submission made by the appellant, however no evidence was produced to this effect, therefore, it cannot be accepted that the appellant have carried out any other process such as galvanizing and redrawing of the pipe. In absence of these processes whatever process carried out, it does not amount to manufacture.

+ Accordingly in terms of Rule 16(2) of the Rule, the appellant on the process not being manufacture is required to pay duty equivalent to the amount of cenvat credit availed at the time of receipt of returned goods.

+ I hold the process does not amount to manufacture, therefore the differential duty demand is sustainable.

+ Since the issue of short payment of duty was raised by the audit party, there is a clear suppression of fact on the part of the appellant… Therefore the demand along with interest and equal amount of penalty under Section 11AC are sustainable.

The impugned order was upheld and the appeal was dismissed.

(Citation: 2017-TIOL-4265-CESTAT-MUM)