Custom, Excise & Service Tax Tribunal
M/S. Timex Watches Ltd vs Cce, Noida on 27 May, 2015
CUSTOMS, EXCISE & SERVICE TAXAPPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. SINGLE MEMBER BENCH Appeal No.E/1349/2006-EX(SM) [Arising out of the Order-in-Original No.37/Comm/2005 dt.23.11.05 dated 23.07.2013 passed by the CCE (Appeals), Noida) Date of Hearing: 29.4.2015 Date of Order:27.05.2015 For Approval &signature: Honble Mr.Ashok Jindal, Member (Judicial) 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 would be released under Rule 27 of the 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 Department Authorities? Yes M/s. Timex Watches Ltd. Appellant Vs. CCE, Noida Respondent
Appearance Shri B.L.Narsimhan, Advocate for the appellant Shri Devender Singh AR for the respondent CORAM: Honble Mr.Ashok Jindal, Member (Judicial) FINAL ORDER NO.51721/2015 Per Ashok Jindal :
The appellant is in appeal against the impugned order wherein the cenvat credit has been denied to the appellant on inputs on the premise that the same have not been put to use and destroyed as defective.
2. The facts of the case are that the appellant is a manufacturer of wrist watches and parts thereof. The appellant was using duty paid watch parts in the manufacture of wrist watches and was availing modvat credit of the duty paid on these watch parts. A show cause notice dated 9.3.2000 was issued to the appellant on the basis of Report of Defective Work (RDW) for the period 1995-96 to 1998-99 to deny modvat credit on watch parts to the extent of Rs.45,90,013/- on the ground that the watch parts were rejected as defective before they were used in or in relation to the manufacture of watches and were destroyed without following the prescribed procedure. Further, credit demand of Rs.2,34,326/- was also proposed to deny on the ground that the inputs found short on the basis of general ledger stock of stock adjustment account. The adjudication took place and the demands proposed in the show cause notice were confirmed against the appellant. The appellant came before this Tribunal and this Tribunal vide Final Order No.A/794/2001-NB dt.1.10.2001 remanded the matter back to the adjudicating authority with the following terms as under:
5.?The appellants had pleaded that the adjudicating authority had not fully understood their record - RDW. Reference has been made to their reply dated 23-6-2000 to the show cause notice. In para A2 it has been submitted as under -
Some of these inputs also got damaged during the process of assembly and are thus rendered waste in the process of manufacture. According to the appellants no cognizance had been taken of this submission by the adjudicating authority. Reference had also been made to the discussion by the adjudicating authority wherein while taking note of the fact that the details given in RDW showed that some inputs became defective during handling of such items, no relief has been given even in respect of such watch parts wasted during handling which is a part of the process of manufacture. It has been pleaded before us that if an opportunity is given to the appellants, then they will be able to produce evidence that some of the parts were got wasted during the course of manufacture of watches and to that extent it was pleaded that the demand of duty was not justified.
6.?We consider that the provisions of Rule 57D are clear and unambiguous. Only when the inputs are contained in any waste, refuse or by product arising during the manufacture of the final product or when the inputs have become waste during the course of manufacture of the final product, the provisions of Rule 57D were applicable. If the inputs are found defective and are not used in the process of manufacture of final products, the benefit of Rule 57D is not applicable to such inputs. Only when the inputs are used in the manufacture of final products and some of those inputs become waste during the course of manufacture of the final product, the credit already taken in respect of such inputs wasted was not to be denied. In the present case, the appellants record in form RDW had not been examined by the adjudicating authority with such understanding in view. He had taken a general view that in all cases the inputs were found defective before they were put to use. We consider that it would be in the interest of justice if the appellants are given an opportunity to explain their records and place evidence with regard to the specific inputs which had become waste during the course of manufacture of wrist watches. The issue with regard to shortages, may also be examined by the adjudicating authority to whom the matter is being remanded. The procedure adopted for destruction may also be examined by the adjudicating authority after giving an opportunity to the appellants to present their case.
3. In remand proceedings, the Commissioner again disallowed credit of Rs.42,53,080/- and also imposed equivalent amount of penalty. Aggrieved with the said order of the Commissioner, the appellant is before me.
4. Shri B.L.Narsimhan, learned Counsel for the appellant appeared and submits that the allegation of the department is totally incorrect as all the inputs were used in the manufacture of final products leading to emergence of waste during course of manufacture and covered by the provisions of Rule 57D of the erstwhile Central Excise Rules, 1944. Therefore, the demand does not survive. To support this contention, he relied on the decision of Honble High Court in the case of Asahi India Safety Glass Ltd. Vs. Union of India-2005 (180) ELT 5 (Del.). He further relied on the judgements in the cases of Sudarshan Chemicals Industries Ltd. Vs. CCE-2010 (262) ELT 974 (Tri.Mum.), Flex Engineering vs. CCE-2012 (276) ELT 153 (SC), TataEngg& Locomotive Co.Ltd.-2010 (256) ELT 56 (Bom). He further submits that there was no shortage of inputs as per general ledger stock of stock adjustment account. The shortages and excesses are due to the fact that stock accounting used to be done on weighment basis since minute inputs ran into millions and physical counting is not possible. He further submits that the appellant has produced reconciliation statement for rejections by production floor and work orders issued by stores with certificate issued by chartered accountant. He, therefore, submits that as the demands are not sustainable consequently, penalty is not imposable on the appellant.
5. On the other hand, learned AR strongly opposed the contention of the learned Counsel and submits that the Commissioner has examined the issue in detail and on the basis of report of rejection of defective work came to the conclusion that these inputs were destroyed before putting into the use. He analysed each and every RDW. Therefore, there is no force in the contention of the learned Counsel for availing credit. Hence, the credit has rightly bee denied to the appellant. He further submits that as per guide line given by this Tribunal in para 7, the Commissioner examined the issue.
6. Heard the parties and considered the submissions.
7. In this case, there are two issues to be decided by me (a) whether the inputs on which the appellant have taken modvat credit have been put to use for manufacture of watches or not and (b)whether there was shortage of inputs in the facts and circumstances of the case.
8. On perusal of the Report of Defective Work in this case, the appellant initially availed modvat credit on the inputs/parts of watches, at the time of receipt of the same, before putting to use, the appellant has conducted certain tests to find out whether the inputs to be usable or not. The inputs which did not find fit to be used, the appellant has reversed credit thereon. Rest of the inputs which were found were issued by the appellant for processing or assembling of watches, and during the course of manufacture of watches, certain inputs were found defective and during further test or certain inputs were lost while manufacturing the goods. For that, the appellant has made certain heads, namely, Q.1 QC samples Destructive samples taken by Quality Control personnel inspectors and which get damaged/become unusable during the process of checking.
Q.2 Samples taken by the manufacturing Engineer for Pilot Engineer testing and which get damaged/become unusable during the process of checking.
M-2 Defect due to the handling of material identifiable by a visual check.
M-3 Defect due to the handling of material identifiable by a functional check M-4 Defect due to the design and dimensional problem by a functional check.
M-5 Defect due to components fabricated in house plastic/dial shop.
M-6 Defects returned to the supplying vendors for salvage/purchase returns. These are returned after debiting/reversing the modvat credit availed or under Rule 57D F1 (ii) Z-1 Defective components taken out from the market returned watches being repaired under Rule 173H. Duty on these reversed on periodical basis.
9. The defective goods were found only after inputs were issued for processing or assembling of watches. This fact has not been disputed and on the basis of record it is ascertained that these inputs were issued for manufacturing watches. Therefore, it cannot be said that the inputs were not put to use. Therefore, in terms of Rule 57D of erstwhile Central Excise Rules, 1944, the inputs have become waste during the course of manufacture or used in or in relation not the manufacture of the final product are eligible for modvat credit. In the impugned order, the Commissioner himself observed that the ripping open of manufactured watches also does not appear to be an essential requirement for manufacture this effectively means that the emergence of this waste is either prior or after the manufacturing process. The waste was in the nature of being emanating as a result of Research and Development process which is quite different from manufacturing activity. The said observations of the Commissioner itself is conclusive that the inputs were issued for manufacturing of watches and the same were found defective during the process of manufacture or during the course of Research and Development process which is integral part of the manufacturing process. Further, I find that the similar issue came up before Honble High Court of Delhi in the case of Asahi India Safety Glass Ltd. (supra) wherein the High Court has granted the benefit of Rule 57D to the float glass not found defective per se and after being put on the float table, and after being cut, broken and washed defects were noted on inspection. Therefore, the Honble High Court concluded that when float glass has been put to use and it was found defective, modvat credit cannot be denied.
10. Further in the case of Sudarshan Chemicals Industries Ltd. (supra), the Tribunal has held that the credit of duty paid on inputs and capital goods used for research and development activities is admissible as without testing in R&D section, the final product cannot be manufactured, hence it is an integral part of manufacturing process and has been used in or in relation to the manufacture of final product. Similar view has been taken by the apex court in the case of Flex Engineering and Bombay High Court in the case of Tata Engg & Locomotive Co.Ltd. (Supra), Therefore, I hold that the defective goods were found only after inputs were issued for processing or assembling of watches, the appellant is entitled to credit as per Rule 57D of erstwhile Central Excise Rules, 1944.
11. Further, I find that for shortage of inputs, the appellant have explained general ledger of stock adjustment account reflected the shortages of inputs on physical verification. However, in the same general ledgers excesses have also been found over the recorded balances of various inputs. It shows that the inputs have been short accounted in some cases and in some other cases the inputs are in excess, therefore, there is no actual shortage of inputs. The shortages and excesses are due to the fact that stock accounting used to be done on weighment basis since the minute inputs ran into millions and physical counting is not possible. The Commissioner has not given any credence to the defence taken by the appellant for shortages of the inputs have not verified the said fact with cogent evidence. Therefore the defence taken by the appellant is acceptable. Accordingly, I hold that there is no shortage of inputs as explained by the appellant. Further all the shortages/rejections have been supported by the chartered accountant certifying the same which has not been controverted by the Revenue with cogent evidence. In view of above, I hold that the appellant has taken modvat credit correctly and consequently they are not required to reverse the modvat credit taken by them. In the circumstances, the penalty is not imposable on the appellant. Therefore, I do not find any merit in the impugned order and the same is set aside. The appeal is allowed with consequential relief.
(order pronounced in the open court on 27.05.2015) (Ashok Jindal) Member (Judicial) mk 1