ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Appeal No. 131/2005-CE dated 30.06.2005 passed by the Commissioner of Central Excise (Appeals), Bangalore.
2. The appellants utilized granules on which they availed Cenvat credit for the manufacture of the final product. These final products were exported under claim for Drawback. Since, in terms of the relevant Rules, they cannot avail both Cenvat credit and the benefit of Drawback, they reversed Cenvat credit on the quantity of input contained in the exported product. Normally, there is 10% wastage in the use of the raw material. When the finished product is 100 Kgs., simultaneously, there is wastage of 10 Kgs. In other words, scrap amounting to 10 Kgs. is also produced. The appellants were reversing the Cenvat credit taken on the 100 Kgs. and as far as the 10 Kgs. are concerned, they did not reverse the Cenvat credit. However, they removed the scrap generated on payment of duty. Revenue proceeded against the appellants on the ground that during the period from November, 2003 to December 2003, the appellants availed wrongly Cenvat credit to the tune of Rs. 90,999/- on the quantity of 12,926 Kgs. of granules. Therefore, proceedings were initiated and the lower authority confirmed the demand and imposed penalty under Section 11AC. Interest under Section 11AB was also demanded. The appellants approached the Commissioner (Appeals). The Commissioner (Appeals) upheld the Order-in-Original. The appellants are aggrieved over the impugned order. Therefore, they have come before this Tribunal for relief.
3. Shri Ramesh Ananthan, the learned Advocate, appeared on behalf of the appellants and Shri K. Sambi Reddy, the learned JDR, for the Revenue.
4. The learned Advocate pointed out that they have not violated any provisions. They are first availing the credit on the input and when the finished product is exported, they reverse the credit availed on the input contained in the export product. As far as the scrap generated is concerned, it was pointed out that in the present case, the scrap is an excisable commodity and the same is removed on payment of duty. Therefore, there is no violation of any provision of the law and they are rightly entitled for Cenvat credit on the input contained in the waste.
5. The learned Departmental Representative argued that even if they export 100 Kgs. of finished product, in order to produce 100 Kgs. of finished product, the raw material required is 110 Kgs. and 10 Kgs. are generated as scrap. Since they are getting Drawback on the finished product and since 110 Kgs. are required for manufacturing the finished product, the credit on the entire 110 Kgs. should be reversed. Since they had reversed credit only on 100 Kgs., they are liable for reversing the credit on the 10 Kgs. of scrap generated. Therefore, he said that the stand of the lower authority is correct and he requested the bench to uphold the impugned order.
6. On a very careful consideration of the issue, we find that the appellants take input credit on the raw materials used and when the raw materials are used, the finished product emerges and along with finished product, waste is also generated. This waste is an excisable commodity and is removed on payment of duty. Therefore, when a product is removed on payment of duty, the input credit can legally be availed and there is no requirement of reversing the Cenvat credit on a product, which was cleared on payment of duty for home consumption.
7. As regards the finished product, which is exported, since the appellants availed the benefit of Drawback, they have reversed the Cenvat credit attributable to the inputs contained in the exported product. Therefore, there is no justification for demanding the Cenvat credit availed by the appellants on the scrap generated, which was only cleared on payment of duty. Hence, the impugned order has no merit. We allow the appeal with consequential relief, if any.
(Pronounced in open court on 27.11.2007)