By TIOL News Service

MUMBAI, APR 20, 2016: THE appellant is engaged in the manufacture of plastic containers, plastic bottles, plastic cap and plastic plugs etc. [Ch. 39]. At times, they also purchase bottles from the market and after availing CENVAT Credit sell the said bought out bottles along with the caps manufactured by them on payment of duty on the transaction value.

Taking a view that since there is no manufacturing activity carried out on the bought out bottles and, therefore, CENVAT credit cannot be availed, demand notices were issued for denying the credit.

The original authority confirmed the demands and imposed penalties on the Directors.

In appeal, the demand was upheld by the Commissioner (A) but the penalties on Directors were set aside.

Both, the appellant and Revenue are in appeal before the CESTAT.

The appellant submitted that even though manufacturing activity had not taken place they are entitled for credit in terms of Rule 16 of CER, 2002. Furthermore, in their own case, for a different unit, same issue was raised and the Tribunal had upheld the order of Commissioner (Appeals) dropping the demand.

The AR submitted that since the appellant had traded the bought out goods without carrying out any manufacturing activity, therefore, CENVAT credit is not allowed.

The Bench after considering the submissions, extracted rule 16 of CER, 2002 and observed thus -

"…From the plain reading of the above Rule 16 (1) & (2) it is clear that if any duty paid goods brought in the factory for being re-made, refined, re-conditioned or for any other purpose and cleared thereafter, the Cenvat credit is allowed on the purchase of the duty paid goods subject to condition that the excise duty is paid on the reissue of that goods. In case of activity does not amount to manufacture, the duty to be paid should be equal to the Cenvat Credit amount and if activity amounts to manufacture, the duty has to be paid on the transaction value of the goods. In the present case, the appellant have availed credit on receipt of the goods and at the time clearance of goods, since the activity does not amount to manufacture, the excise duty is required to be paid should not be less than the Cenvat credit availed. The quantum of payment of duty is not under dispute. I am of the considered view that the transaction of purchase of goods, availment of Cenvat credit thereon and payment of duty on the said goods on its removal is squarely covered under the provisions of Rule 16 of the Central Excise Rules, 2002. More over in the appellant's own case, for a different unit, on the identical issue, this Tribunal had upheld the order of the Commissioner (Appeals) wherein the Ld. Commissioner (Appeals) had dropped the demand. Considering the above decision and my above discussion, I am of the considered view that the appellant has correctly availed the Cenvat Credit on the bought out plastic bottles…."

The appeals filed by the assessee were allowed and consequently that by the Revenue were dismissed.

(See 2016-TIOL-934-CESTAT-MUM)