Cenvat Credit under Rule 2 can be Availed by a Person who only Purchases Goods ‘Manufactured’ by Manufacturer: CESTAT [Read Order]

In a recent judgement, the Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that Cenvat Credit under Rule 2 of CENVAT Credit Rules (CCR), 2004 can be availed by a person who only purchases goods ‘manufactured’ by the manufacturer.

M/s. Vignesh Alloys Pvt. Ltd., the appellant is engaged in the manufacture of Aluminium Alloy Ingots falling under Central Excise Tariff Heading 76012010 of the Central Excise Tariff Act (CETA), 1985. They have imported ‘aluminium scrap’ and directed it to some dealers who in turn have resold the aluminium scrap to the appellant. The dealer has also not acted as a ‘first-stage dealer’ as defined in terms of Rule 2(ij)(i) of CENVAT Credit Rules, 2004.

During the period September 2010, the appellant has availed credit on the resold aluminium scrap amounting to Rs.26,22,870/- which appeared ineligible to the original authority. He has after due process of law gone ahead to confirm the recovery of CENVAT credit along with interest and imposed penalty.

On appeal, the Commissioner (Appeals) has found that the appellant has purchased goods from a dealer who has not received the scrap directly from the manufacturer or imported aluminium scrap but has received the same from the manufacturer who has imported the goods for further use in the manufacture of ingots. The availment of credit by the appellant based on the dealer’s invoices is ineligible in terms of Rule 2(ij)(i) of CENVAT Credit Rules, 2004 and went on to reject the appeal.

It was argued that the appellants are not the manufacturer of Aluminium scrap and they have only imported the scrap for the manufacture of Aluminium ingots. They cleared a certain quantity of scrap ‘as such’ under Rule 3(5) of CCR 2004 to a first-stage dealer who availed credit on the same and thereafter resold to the appellant who availed credit on the said goods being inputs.

According to the department, the first-stage dealer cannot avail credit on the aluminium scrap as the goods having removed as such.

A Coram comprising of Ms Sulekha Beevi C.S, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) observed that the purpose of Rule 2, the dealer purchases ‘goods’ from the manufacturer and is not limited to somebody who only purchases goods ‘manufactured’ by the manufacturer. The CESTAT set aside the impugned order and allowed the appeal.

To Read the full text of the Order CLICK HERE

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