Cenvat credit cannot be denied at the end of recipients of goods, on the premise that higher duty been paid by manufacturer

In the instant case, Bajaj Auto Ltd. Pune/Aurangabad and Telco, Pimpri (the manufacturers), sold scraps (impugned goods) to the first stage dealers who, in turn, sold the impugned goods to Pefco Foundry (the Assessee). The Revenue denied Cenvat credit amounting to Rs. 49,89,412/- to the Assessee on the following grounds:

• Cenvat credit has been availed by the Assessee against the invoices indicating supply of MS Off cuts, whereas the material which was actually supplied under the cover of invoices was CRCA scrap;
• The price at which the impugned goods were sold by the manufacturers to the first stage dealers was excessively higher than the price at which the dealer sold such impugned goods to the Assessee.

The Assessee submitted that the impugned goods sold by the manufacturers at a certain price to the first stage dealers are segregated wherein the scrap which can be used for manufacturing of components directly is sold at higher price and the scrap which either cannot be used or sold for use of melting are sold under the cover of invoices at a lower price. It was further submitted that till 1997, the manufacturers were describing the impugned goods as M.S. Scrap but after the decision of the Hon’ble Supreme Court in the case of LML, they revised the classification list and classifying the same material as MS Off cuts. Therefore, the contentions of the Revenue are not sustainable.

Thereafter, the Adjudicating Authority decided the matter in favour of the Assessee, allowing the Impugned Cenvat credit. Being aggrieved, the Revenue preferred an appeal before the Hon’ble CESTAT, Mumbai.

The Hon’ble CESTAT, Mumbai held as under:

• From the various statements of dealers and the manufacturers, recorded by the Revenue, it is clear that till 1997, the impugned goods were described as M.S. scrap and thereafter in terms of the decision of Hon’ble Supreme Court in the case of LML, the impugned goods were classified into various types of M.S. Offcuts. These M.S. Offcuts either can be used for manufacture of components or can be used as melting scrap;
• Further, from the statements of first stage dealers, it is clarified that after procuring the impugned goods from the manufacturer, they used to segregate them and the goods which can be used for manufacture of components or can be re-used were sold at higher price and the remaining were sold at lower price as CRCA melting scrap;
• During the period 1996-97, Bajaj Auto Ltd. was clearing the MS scrap by reversing the Cenvat credit availed on MS Sheets (inputs). In that case, the Revenue cannot dispute reversal of Cenvat credit by Bajaj Auto Ltd., at the end of the recipients of the said goods as Cenvat credit is taken on the duty paid by Bajaj Auto Ltd., on the said goods;
• The Hon’ble Supreme Court in the case of MDS Switchgear Pvt. Ltd. [2008 (229) ELT 485 (S.C.)], has held that Cenvat credit cannot be denied at the end of the recipients of the goods on the premise that higher duty has been paid by the manufacturer.

Thus, the Hon’ble Tribunal upheld the Order of the Adjudicating Authority allowing Cenvat credit to the Appellant and decided the case in favour of the Assessee.

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