Maruti Suzuki India Ltd Vs Commissioner of Central Excise (CESTAT Chandigarh)
CESTAT Chandigarh held that CENVAT Credit cannot be denied merely because final products are destroyed during testing. Notably, testing is integral to the activity of manufacture and CENVAT attributable to inputs that have gone into the manufacture of final products cannot be denied.
Facts- M/s Maruti Suzuki, the appellants, are engaged in the manufacture of motor vehicles, spares and components etc. and were availing CENVAT credit on inputs, capital goods and services; the appellant sends some of the vehicles to their associated companies situated outside India for testing, research and development purposes; such vehicles exported did not materialize in any export realization.
On conduct of Audit, Department concluded that the appellants are not entitled to CENVAT credit on such vehicles exported for testing etc., without realization of export proceeds. Accordingly, show-cause notices were issued to the appellants demanding CENVAT credit of Rs.1,90,20,198/- along with interest and penalty. Commissioner confirmed the recovery of credit along with equal penalty. Being aggrieved, the present appeal is filed.
Conclusion- It has been held in a number of cases that testing is integral to the act of manufacture and that CENVAT Credit cannot be denied on account of the fact that the samples are destroyed during the course of testing or as a result of testing.
Held that there is no provision under the Central Excise Rules or CENVAT Credit Rules to deny CENVAT credit just because the final products are destroyed during testing and for the reason that no export proceeds have been realized for such exports of prototypes. We find that the Hon‟ble Supreme Court and the Tribunal has been consistent in holding that testing is integral to the activity of manufacture and CENVAT credit attributable to the inputs that have gone into the manufacture of said final products cannot be denied to the appellants.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
M/s Maruti Suzuki, the appellants, are engaged in the manufacture of motor vehicles, spares and components etc. and were availing CENVAT credit on inputs, capital goods and services; the appellant sends some of the vehicles to their associated companies situated outside India for testing, research and development purposes; such vehicles exported did not materialize in any export realization; on conduct of Audit, Department concluded that the appellants are not entitled to CENVAT credit on such vehicles exported for testing etc., without realization of export proceeds. Show-cause notices dated 04.05.2011 and 30.04.2012 were issued to the appellants demanding CENVAT credit of Rs.1,90,20,198/- along with interest and penalty; both the show-cause notices were adjudicated vide the impugned order dated 03.08.2012 wherein learned Commissioner, CGST Delhi-III has confirmed the recovery of credit along with equal penalty. Hence, these two appeals E/3655/2012 and E/3656/2012.
2. Ms. Krati Singh, learned Counsel for the appellants, submits that the entire issue is settled in appellant’s favour for the subsequent periods; this Bench vide Final Order No.61019/2017 dated 23.05.2017 dismissed the appeal filed by the Department holding that export of sample vehicles/ prototype for testing and analysis is part of the manufacturing activity and hence, CENVAT credit is available to the appellant. Learned Counsel submits that Rule 3 of the CENVAT Credit Rules, 2004 provides that a manufacturer of final product shall be entitled to avail the credit of specified duties in respect of inputs or capital goods received in the factory of the manufacturer for use in or in relation to manufacture of final products; it is not disputed that the appellant was engaged in the manufacture and sale of motor vehicles; before producing the vehicles on a mass basis, various tests and checks for safety and quality are conducted on the goods and during that testing etc., the goods are destroyed and disposed of; learned Counsel produces copy of a Destruction Certificate issued by M/s ABN Amro Bank.
3. Learned Counsel further submits that export of sample vehicles is integral part of the manufacturing process and is intrinsically linked to the manufacture of final products; manufacture is not complete without such testing; hence, CENVAT credit cannot be denied as held in the following cases:
