M/S. Jolly Containers vs Commissioner Of Central Excise & S.T., ...

(Arising out of OIA-ID/27/DAMAN/2007 dated 31.10.2007, passed by Commissioner (Appeals) Central Excise, Service Tax & Customs, Daman)

M/s. Jolly Containers : Appellant (s)

VERSUS

Commissioner of Central Excise & S.T., Daman : Respondent (s)

Represented by :

For Appellant (s) : Shri J.C. Patel and Rahul Gajera, Advocates For Respondent (s) : Shri Lalatendu Patra, Authorised Representative

For approval and signature :

Mr. P.K. Das, Hon'ble Member (Judicial) Mr. P.M. Saleem, Hon'ble Member (Technical)

1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

No 3 Whether their Lordships wish to see the fair copy of the Order?

Seen 4 Whether Order is to be circulated to the Departmental authorities?

Yes

CORAM :

Mr. P.K. Das, Hon'ble Member (Judicial) Mr. P.M. Saleem, Hon'ble Member (Technical)

Date of Hearing / Decision : 15.09.2015

ORDER No. A/11358 / 2015 Dated 15.09.2015

Per : Mr. P.M. Saleem;

1. The brief facts in the appeal herein are:-

(i) The appellant is engaged in manufacturing of Plastic Pallets classifiable under Chapter 39 of the Central Excise Tariff Act, 1985. The appellant clear the Pallets for home consumption on sale basis, on payment of duty at appropriate rate. The said pallets are also issued for captive usage in the factory for handling of inputs, semi-finished goods and finished goods viz. Jolly Pack Containers, Refrigerator Parts, Washing Machine Parts, Air Condition Parts, Cutlery etc. When the pallets are used captively, the appellant did not pay duty and availed exemption from duty under Notification No. 67/95-CE dated 16.03.1995, as amended.

(ii) The appellant received inputs and availed Cenvat credit of duty paid on such inputs. Appellant found some inputs defective and not fit for further consumption and hence raised debit notes to supplier of inputs and recovered amount from suppliers. When the inputs for which credit is availed and not utilised for intended purpose, the Cenvat credit involved was required to be reversed which the appellant did not reverse. According to Department, the credit involved is thus, recoverable from the appellant.

(iii) The audit also observed that appellant has recovered Freight Charges from buyers of finished goods by raising commercial invoices/ Debit Notes in certain cases. At the time of removal of their final goods, appellant did not show separately the freight charges in the invoices issued.

2. A show cause notice dated 07.01.2006 was issued in this regard. The adjudicating authority namely, Deputy Commissioner, Central Excise & Customs vide the impugned order-in-original adjudicated the matter and confirmed the demand of Central Excise duty of Rs. 54,140/- along with interest on plastic pallets under provisions to Section 11A of Central Excise Act, 1944. He also confirmed Cenvat credit of Rs. 6,280/- along with interest involved on rejected inputs, under Rule 12 of Cenvat Credit Rules, 2002 (now Rule 14 of Cenvat Credit Rules, 2004). He confirmed the demand of differential duty amounting to Rs. 38,332/- on account of freight charges. The adjudicating authority also imposed penalty of Rs. 98,758 under Section 11AC of the Central Excise Act, 1944 read with Rule 3(2) of the Cenvat Credit Rules, 2002. The appellants filed appeal before the Commissioner (Appeals) against the said order, and Commissioner (Appeals) vide impugned order-in-appeal dated 31.10.2007, upheld the order of the adjudicating authority. Aggrieved by the said impugned order-in-appeal, the appellant is before the Tribunal.

3. Heard both sides. The learned Advocate for the appellant submits that the impugned Pallets manufactured by them are admittedly used by them captively in their factory. It is his contention that it is used in or in relation to the manufacture of the final products and therefore, they are eligible for the benefit of exemption under Notification No. 67/95-CE dated 16.3.1995. As regards the debit notes of Rs. 6,280/-, he submits that the same is in nature of compensation for defective material supplied by their suppliers which were rejected during the production. He submits that this has noting to do with availing of credit of Central Excise duty paid by their suppliers on the products which they have supplied. As regards the demand on freight charges, he submits that the issue is settled and freight charges are not to be included in the assessable value. He also cited case laws in his favour. On the other hand, learned Authorised Representative for the Revenue strongly refuted the arguments advanced by the learned Advocate and draws our attention to the findings of the adjudicating authority and the Commissioner (Appeals).

4. For better appreciation of the issue, Notification No. 67/95-CE dated 16.03.1995 is reproduced below:-

Capital goods and inputs captively consumed within the factory of production In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts -

(i) capital goods as defined in rule 57Q of the Central Excise Rules, 1944 manufactured in a factory and used within the factory of production;

(ii) goods specified in column (2) of the Table hereto annexed (hereinafter referred to as inputs) manufactured in a factory and used within the factory of production in or in relation to manufacture of final products specified in column (3) of the said Table;

from the whole of the duty of excise leviable thereon which is specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) :

Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products (other than those cleared either to a unit in a Free Trade Zone or to a 100% Export Oriented Undertaking or to a unit in an Electronic Hardware Technology Park or to a unit in a Software Technology Parks), which are exempt from the whole of duty of excise leviable thereon or are chargeable to Nil rate of duty.

Explanation. - For the purposes of this notification inputs does not include 

(i) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;

(ii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under section 4 of the Central Excises and Salt Act, 1944 (1 of 1944).

TABLE Sr. No. Description of inputs Description of final products (1) (2) (3)

1. All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following, namely, -

(i) goods classifiable under any heading of Chapter 24 of the Schedule to the said Act;

(ii) goods classifiable under heading Nos. 36.05 or 37.06 of the Schedule to the said Act;

(iii) goods classifiable under sub-heading Nos. 2710.11, 2710.12, 2710.13 or 2710.19 (except Natural gasoline liquid) of the Schedule to the said Act;

(iv) high speed diesel oil classifiable under heading No. 27.10 of the Schedule to the said Act.

All goods falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the following, namely, -

(i) goods classifiable under any heading of Chapter 24 of the Schedule to the said Act;

(ii) goods classifiable under heading Nos. 36.05 or 37.06 of the Schedule to the said Act;

(iii) woven fabrics classifiable under Chapter 52 or Chapter 54 or Chapter 55 of the Schedule to the said Act.

5. It is observed from the above that the goods specified in Column -2 of the Table to the notification, when manufactured in the factory and used within the factory of production in or in relation to the manufacture of final products specified in Column-3 of the Table to the notification and are exempted from the payment of duty of excise. In the instant case, the impugned goods namely, Pallets classifiable under Chapter 39 is covered by the description of inputs in Column-2 and the final products namely, Articles of Plastics and other goods classifiable under Chapter 39 and 84 are covered by description of final products specified in Column -3 of the notification. It is also observed that the adjudicating authority has observed. I find that the appellants have used the Pallets in the factory premises for keeping their other finished goods viz., Jolly Pack Containers, Refrigerator Parts, Washing Machine Parts etc. and not for excisable activities. It is therefore, clear that the impugned Pallets are manufactured in the factory of the appellants and used within the factory of production in or in relation to the manufacture of final products. The said Pallets are also covered in the description of inputs, and final products manufactured by the appellants are also covered by the description of final products specified in the notification. Therefore, the impugned pallets are clearly eligible for exemption under Notification No. 67/95-CE dated 16.3.1995 for captive consumption within the factory of the appellants. The Honble Tribunal in the case of Raymond Limited vs. CCE, Bhopal  2014 (302) ELT 415 (Tri. Mumbai) and in the case of ACE Glass Containers Limited vs. CCE, Meerut-1  2010 (250) ELT 110 (Tri. Del.) has held that racks and trolleys, and Plastic crates, respectively, manufactured by the appellants were used in or in relation to the manufacture of final goods would be eligible for the benefit of Notification No. 67/95-CE (supra).

6. As regards the Debit Notes for Rs. 6,280/-, from the documents submitted along with the memorandum of appeal, we find that the claim is made by the appellant on their suppliers, towards the cost incurred by the appellants due to supply of defective material by the suppliers, which were taken into production by the appellant. We agree with the contention of the learned Advocate of the appellant that this in no way reduce the assessable value of the inputs which were purchased by the appellants, on which Central Excise duty was paid on the assessable value, against which the appellants have taken cenvat credit. The appellants are rightly eligible for the same and hence the demand is not justified. The Honble Delhi High Court in the case of Ashi India Safety Glass Limited vs. UOI  2005 (180) ELT 5 (Del.) has held that when the material is used in the manufacturing process and merely because at a later point of time after the material has undergone the process of manufacture, it was found defective and rejected or part of the input being found defective and rejected, this is no ground for denying the benefit. The Honble Tribunal in the case of CCE, Bangalore vs. IFB Automotive (P) Limited  2010 (261) ELT 340 (Tri. Bang.)., in an identical issue, has held that the cost which has been recovered is the cost of waste inputs. In that case the Tribunal while upholding the order of the Commissioner (Appeals), held that  It is a fact that the inputs have suffered duty when the supplier cleared them to the appellant. It. is also a fact the appellant has received the inputs and used them in the manufacture of final products. The fact of the recovery of the cost of the wasted inputs should not be a ground for asking them to reverse the Cenvat credit availed, because it is not the Departments case that the inputs have been removed as such, without being put to use. There is no legal authority with the Department for such recovery. Also it is seen from the debit notes that the appellant has recovered only the cost of the material and not excise duty portion.

7. As regards the issue of freight charges, it is observed that the matter is no more res-integra. The Honble Supreme Court in the case of Commissioner vs. Accurate Meters Limited  2009 (235) ELT 581 (SC) has held that freight charges are not part of assessable value of the goods. The said decision has been followed by the various benches of the Honble Tribunals such as in the case of National Peroxide Limited vs. CCE, Thane  2013 (298) ELT 423 (Tri. Mumbai) and CCE, Kolkata-II vs. North India Wires Limited  2014 (314) ELT 648 (Tri. Kolkata).

8. In the light of the above analysis, we find that the impugned orders cannot be sustained and therefore, we set-aside the same. Appeal filed by the appellant is allowed.

(Dictated and pronounced in the open Court)

(P.K. Das) (P.M. Saleem) Member (Judicial) Member (Technical) ..KL

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