# Commissioner, Central Goods & Services Tax Commissionerate, Ghaziabad v. M/S International Tobacco Co. Ltd

- **Citation:** (2019) 4 ILRA 797
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2019-12-06
- **Case number:** Central Excise Appeal No. 88 of 2019
- **Bench:** Biswanath Somadder, Ajay Bhanot
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/commissioner-central-goods-services-tax-commissionerate-ghaziabad-v-m-s-44950
- **Pages:** 10

## Headnote

A. Tax Law - Central Excise Act, 1944:
11A, 11AB, 11AC, 35-G; Central Excise
Rules, 2002: Rules 16(1), 16(2), 26;
CENVAT Credit Rules, 2004: 14, 15(2) -
Scrapping of goods does not fall within
the ambit and scope of Rule 16(1).

B. Interpretation of phrase "or for any
other reason" in Rule 16(1), CER, 2002 -
The phrase has to be necessarily read on the
construction canon of ejusdem generis. The
three preceding phrases („re-made‟, „refined‟
and „re-conditioned‟) depicting three similar
processes qualify and restrict the scope of the
phrase "or for any other reason". (Para 24 to
27)

"Re-made", "refined" and "re-conditioned" are
processes
akin
to
manufacture;
while
scrapping involves destruction of the original
identity of the goods. Scrapping is neither a
species not in the likeness of "re-made",
"refined" or "re-conditioned". Consequently,
when goods are scrapped, it cannot be stated
that the said goods were brought to the
factory for being "re-made", "refined", "reconditioned", "or for any other reason"
provided in Rule 16(1). (Para 31)

CENVAT Credit denied and penalty has been
upheld.

Central Excise Appeal allowed. (E-4)

Precedent followed:

## Text

4 All. Commissioner, Central Goods & Services Tax Commissionerage, Ghaziabad Vs. M/S International Tobacco Co. Ltd.
797
complied the statutory requirement, is
entitled to the benefit claimed by him.

24. The judgment in case of Thakker
Tobacco (supra) having been accepted by
the C.B.D.T. in its circular dated
16.2.2018, the controversy does not
remain any longer as the matter is not res
integra any more.

25. In view of the above, we are of the
considered
opinion
that
once
the
Department has accepted the judgment in
case of Thakker Tobacco (supra) and has
issued circular holding that assessee is
entitled to abatement of duty, in the event of
closure of factory for continuous period of
15 days or more, without first depositing the
duty in terms of Rule 10 of PMPM Rules,
2008, the appeal of the revenue has no force
and is hereby dismissed.

26. The question of law are,
therefore, answered in favour of the
assessee and against the revenue.
----------
(2019)12 ILR A797

APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 06.12.2019

BEFORE
THE HON'BLE BISWANATH SOMADDER, J.
THE HON'BLE AJAY BHANOT, J.

Central Excise Appeal No. 89 of 2019 with
Central Excise Appeal No. 88 of 2019

Commissioner, Central Goods & Services
Tax Commissionerate, Ghaziabad
 ...Appellant
Versus
M/S International Tobacco Co. Ltd.
 ...Respondent

Counsel for the Appellant:
Sri Dhananjay Awasthi

Counsel for the Respondent:
Sri Shubham Agrawal, Sri Ajay Agarwal

A. Tax Law - Central Excise Act, 1944:
11A, 11AB, 11AC, 35-G; Central Excise
Rules, 2002: Rules 16(1), 16(2), 26;
CENVAT Credit Rules, 2004: 14, 15(2) -
Scrapping of goods does not fall within
the ambit and scope of Rule 16(1).

B. Interpretation of phrase "or for any
other reason" in Rule 16(1), CER, 2002 -
The phrase has to be necessarily read on the
construction canon of ejusdem generis. The
three preceding phrases („re-made‟, „refined‟
and „re-conditioned‟) depicting three similar
processes qualify and restrict the scope of the
phrase "or for any other reason". (Para 24 to
27)

"Re-made", "refined" and "re-conditioned" are
processes
akin
to
manufacture;
while
scrapping involves destruction of the original
identity of the goods. Scrapping is neither a
species not in the likeness of "re-made",
"refined" or "re-conditioned". Consequently,
when goods are scrapped, it cannot be stated
that the said goods were brought to the
factory for being "re-made", "refined", "reconditioned", "or for any other reason"
provided in Rule 16(1). (Para 31)

CENVAT Credit denied and penalty has been
upheld.

Central Excise Appeal allowed. (E-4)

Precedent followed:

1. Gyanwati Devi Vs. State of U.P. and 5
others, Special Appeal No. 33og 2019 (Para
26)

Present appeal is against order dated
03.04.2018, passed by Customs, Excise
and Service Tax Appellate Tribunal,
Allahabad.

(Delivered by Hon'ble Ajay Bhanot,J.)
798 INDIAN LAW REPORTS ALLAHABAD SERIES

1. Both the Central Excise Appeals
instituted under section 35-G of the
Central Excise Act, 1944 arise from the
same judgment and order passed by the
learned Customs, Excise & Service Tax
Appellate Tribunal, Allahabad, dated 3rd
April, 2018, which sets aside the Orderin-Original dated 21st October, 2010
passed by the Commissioner of Customs,
Central Excise & Service Tax, Ghaziabad.

2. The appeals raise two separate
substantial questions of law but the facts
are the same. The substantial questions of
law
arising
in
both
the
appeals
respectively can be decided conveniently
by one judgment.

3. The learned Customs, Excise &
Service
Tax
Appellate
Tribunal
(CESTAT), Allahabad, in its order dated
03.04.2018 held that the assessee -
respondent is entitled to CENVAT credit
and has lawfully taken and utilized
CENVAT credit under Rule 16 of the
Central
Excise
Rules,
2002.
The
Commissioner
of
Customs,
Central
Excise & Service Tax, Ghaziabad, had in
the Order-in-Original dated 21st October,
2010, found that the assessee had wrongly
availed of the CENVAT credit under Rule
16(1) of the Central Excise Rules, 2002
and accordingly ordered recovery of
evaded liability and imposed penalty.

4. The connected Central Excise
Appeal No.88 of 2019 (Commissioner,
Central
Goods
and
Service
Tax
Commissionerate, Ghaziabad Versus R.K.
Gupta) has also been filed against the said
judgment and order of the learned
Customs, Excise & Service Tax Appellate
Tribunal (CESTAT), Allahabad, dated 3rd
April, 2018, in regard to reversal of the
penalty imposed upon Sri R.K.Gupta
under Rule 26 of the Central Excise
Rules, 2002 by the Order-in-Original
dated 21.10.2010.

5. The respondent - assessee is
engaged in the manufacture of various
brands of cigarettes on job work basis for
M/s Godfrey Philips India Limited.
During the period under assessment,
certain
cigarettes
manufactured
and
removed by the appellant on payment of
Central Excise duty were returned by
Godfrey Philips India Limited for various
reasons. The respondent
- assessee
claimed that the goods were brought back
to the factory for refining.

6. The respondent - assessee took
CENVAT credit by treating the said
returned goods as inputs for the period
November, 2006 to May, 2007 and for the
period August, 2008 to April, 2009.

7. The respondent - assessee claimed
entitlement to credit under Rule 16(1) of
the Central Excise Rules, 2002 and
availed of the CENVAT credit under Rule
16(2) of the Central Excise Rules, 2002,
when the goods were removed from the
factory after "refining". Principally, the
controversy in the instant appeal centres
around Rule 16(1) of the Central Excise
Rules, 2002.

8. When the offending transactions
were noticed by the Revenue, show cause
notices were issued to the respondent -
assessee.
The
show
cause
notices
recorded that "refining" of cigarettes is
not covered under Rule 16 of the Central
Excise Rules, 2002. The sum and
substance of the case of the Revenue
against the respondent - assessee was that
the respondent - assessee engineered the
return
of
the
so-called
non
marketable/non saleable cigarettes, with
the intent to unlawfully avail the benefits
4 All. Commissioner, Central Goods & Services Tax Commissionerage, Ghaziabad Vs. M/S International Tobacco Co. Ltd.
799
of CENVAT credit under Rule 16 (1) of
the CENVAT Credit Rules, by misleading
the Revenue.

9.

The
show
cause
notice
specifically asserted that the respondent -
assessee had wilfully, knowingly and with
a mala fide intention, wrongly availed
CENVAT credit which is recoverable
from it under Rule 14 of the CENVAT
Credit Rules, 2004, read with proviso to
section 11A of the Central Excise Act,
1944, along with interest under section
11AB of the said Act. The respondent -
assessee was also liable for penal action
under Rule 15(2) of the CENVAT Credit
Rules, 2004, read with section 11AC of
the Central Excise Act, 1944.

10. Sri R.K.Gupta is the appellant in
the connected appeal who was "the sole
In-charge and responsible person for dayto-day working in respect of all excise
matters in the factory" was also noticed
for having concealed facts to mislead the
department and was liable to penal action
under Rule 26 of the Central Excise
Rules, 2002, read with section 11AC of
the Central Excise Act, 1944.

11. The respondent - assessee
showed cause and tendered its defence
before
the
noticing
authority
and
contested the proceedings.

12. The assessing officer adjudicated
the controversy by order dated 21.10.2010
wherein it found in favour of the Revenue
and held that the assessee had wrongly
claimed CENVAT credit under Rule
16(1) of the Central Excise Rules, 2002
and Sri R.K.Gupta, Deputy General
Manager (IT & Accounts) was liable to
pay penalty under Rule 26 of the Central
Excise Rules, 2002.

13. The assessing officer found that
the assessee - respondent had wrongly
availed CENVAT credit, amounting to
Rs.6,83,28,039/-
(Rupees
six
crores
eighty three lakhs twenty eight thousand
thirty nine only) under Rule 16 of the
CENVAT Credit Rules, 2004.

14. A penalty to the tune of
Rs.6,83,28,039/-
(Rupees
six
crores
eighty three lakhs twenty eight thousand
thirty nine only) was also imposed upon
the respondent - assessee.

15. A penalty of Rs.5,00,000/-
(Rupees five lakhs only) was imposed on
Sri R.K.Gupta in the connected appeal
under Rule 26 of the Central Excise
Rules, 2002. Sri R.K.Gupta suffered the
penalty for his involvement in wrong
availment of the above mentioned amount
of CENVAT credit in contravention of the
provisions of CENVAT Credit Rules,
2004, & Central Excise Act, 1944 and the
Rules framed thereunder. This penalty is
the subject matter of Central Excise
Appeal No.88 of 2019 (Commissioner,
Central
Goods
and
Service
Tax
Commissionerate, Ghaziabad Versus R.K.
Gupta).

16. The adjudicating authority in its
Order-in-Original dated 21.10.2010 fixed
the
aforesaid
liabilities
under
the
CENVAT Credit Rules, 2004 and Central
Excise Act, 1944 and Central Excise
Rules, 2002 on the foot of such reasons as
set forth hereinunder:

"6.4 From the contents of show
cause notice I find that there are following
basic issues raised-

(i) The cigarettes received back
from sale offices or C & F agents are not
returned by the said sale offices or C & F
800 INDIAN LAW REPORTS ALLAHABAD SERIES
Agents against damage or defects but are
returned as per guidance from ITC only
for want of reasons not disclosed to the
Department. It has been brought out in the
notice that memos are issued to the sale
offices for return of goods as per
directions of ITC themselves against
which the cigarettes are returned without
any remarks as to why the same have
been
returned.
The
challans
accompanying returned cigarettes contain
note "please receive following brands of
cigarettes against your order". On receipt
of cigarettes, ITC had informed the
Department the reasons like "Brand not
marketable", cigarettes giving bad smell".
However, it was found that the cigarettes
of same brand which was claimed to be
not marketable were again dispatched to
the same sale office from where they
received the returned cigarettes. In every
case, ITC informed the Department that
the
cigarettes
were
received
for
refreshing. The cigarettes received back
were found in original packing and even
outer cartons were intact. It has been
alleged in the SCN that the claim of the
party that the same found defective were
received back for refreshing is not true as
even without removing the outer carton,
how one can come to know that the
cigarettes are not in a condition to be
marketed.

(ii) The process of refreshing
has been elaborated in the SCNs. It has
been found that on receipt of returned
cigarettes, the same are scrapped and the
outer cartons, cigarette packets, cigarette
wrapper, filter almost every cenvatable
material on which Cenvat credit had been
availed by ITC are thrown away without
payment of duty. It is only the tobacco of
the returned cigarettes which is recovered
(to the extent of around 80%) and the
same is reused for the manufacture of
fresh cigarettes. It has thus been alleged
that all the inputs except tobacco are
separated first and disposed off and then
only the tobacco portion is used in
manufacturing of fresh cigarettes.

6.5 From the above I find that
cigarettes received back for refreshing are
not put to use as inputs for the
manufacture of finished goods. These are
actually put to the process of separation of
all inputs other than tobacco by method of
scrapping and to my opinion, the said
process
cannot
be
treated
as
a
manufacturing process. The returned
cigarettes as such can also not be treated
as inputs as the same cannot be put to use
as inputs in the manufacture of cigarettes.
I also feel that the use of retrieved tobacco
by mixing with fresh tobacco is done by
the party with the sole aim to avail credit
on returned goods as the value of such
tobacco is very low as compared to the
credit available to them on returned
cigarettes.

6.6 As discussed above, the
value of tobacco is comparatively much
smaller as compared to the value of all
other goods which are scrapped and
thrown away without payment of duty.
Going into the process of refreshing, I
find that the entire material received back
is put to scrapping process and two things
are
obtained
namely,
(1)
scrapped
cartons/packet/cigarette paper/ filter and
(2) tobacco. The scrapped material is a
non excisable material and is disposed off
without payment of duty and the tobacco
so recovered is put to use for the
manufacture of cigarettes. Thus it is
evident that the returned cigarettes are
actually used in the manufacture of
scrapped goods (non dutiable) and only
tobacco can be said to be used in the
manufacture of dutiable goods. Thus it is
evident that the purpose of receipt of
4 All. Commissioner, Central Goods & Services Tax Commissionerage, Ghaziabad Vs. M/S International Tobacco Co. Ltd.
801
cigarettes is to remove them from the
market stream and to destroy them and
not to use them as inputs in the
manufacture of fresh goods. As such I feel
that the returned cigarettes do not come
within the purview of rule 16 of CER,
2002 under the provisions of which ITC
have availed credit on them."

17. The respondent - assessee
carried the Order-in-Original passed by
the adjudicating authority in appeal before
the learned Customs, Excise and Service
Tax Appellate Tribunal. The learned
Customs,
Excise
and
Service
Tax
Appellate Tribunal, by its judgment dated
15.10.2018, held in favour of the assessee
and quashed the order passed by the
adjudicating
authority.
The
learned
Appellate Tribunal found the assessee to
be entitled for CENVAT credit under
Rule
16(1)
on
the
following
understanding of the said Rule:-

"A bare perusal of Rule 16(1)
supports the contention of the learned
counsel for the Appellants inasmuch as it
enacts a fiction of law to the effect that
the goods on which duty has already been
paid at the time of removal thereof are
brought into any factory for various
reasons mentioned in the Rule, including
but not limited to any other reason, they
are entitled to take CENVAT Credit of
duty paid on such goods, as if such goods
are received as inputs under the CENVAT
Credit Rules, 2002 and is entitled to
utilize this credit according to the said
Rule. These returned cigarettes were
brought back into the factory under
conditions specified under Rule 16 of the
Central Excise Rules, 2002 alongwith the
Forwarding Challan-cum-Invoice counter
signed by the Officer of the Department.
From the record, we find that the
adjudicating authority while coming to
the conclusion in para 6.2 has observed
that:

"6.2. The issue in the present
proceedings
before
me
is
whether
cigarettes received back from sale offices
or from clearing and forwarding agents
are eligible for credit of duty paid on
them originally at the time of their
clearance from the factory under the
provisions of rule 16 of CER, 2002. I
would like to analyze the provisions of
this rule under which the impugned credit
has been availed by the party. In terms of
this rule, goods should be brought back
for being re-made, refined re-conditioned
or for any other reason and the assessee
is entitled to take credit of duty paid if
such goods are received as inputs under
the Cenvat credit rules, 2002. I find that
ITC, in their reply have given force on the
words "for any other reason". I find that
the availment of Cenvat credit is
primarily governed by CCR, 2002/2004
and thus the availment of Cenvat credit
provided by any other rule like CER, 2002
cannot be beyond the provisions of
Central Credit Rules. Here I also find that
in the said rule 16 of CER, 2002, there is
clear mention that goods must be received
to be used as inputs in term of CCR, 2002.
Thus the very first condition for eligibility
of credit on returned goods is that the
goods must be usable and used as inputs
in the manufacture of finished goods. I
find that the very basis of the present
dispute is that Department has alleged
that the goods have not been brought
back for being used as inputs but only to
take credit in the guise of rule 16 of CER,
2002. On the other hand, ITC have
stressed that conditions of Rule 16 of
CER, 2002 have been satisfied by them
for availment of credit on returned
cigarettes."
802 INDIAN LAW REPORTS ALLAHABAD SERIES

From the above, we find that the
reasoning given by the adjudicating
authority with respect to Rule 16 is by
assuming that it deals with inputs "as
such" and not inputs "as if".

6. We further find that Rule 16
is wide enough to cover the case of the
Appellants in view of the wordings used
in it which inter alia includes "any other
reason" for receiving the duty paid goods.
The duty paid character of the goods,
being not disputed in the present case,
Rule 16 is squarely applicable and
accordingly the Appellants have rightly
taken the CENVAT Credit and utilized
the same."

18. The following are the substantial
questions
of
law
which
fall
for
determination in these appeals:

1.
"Whether
the
learned
Customs, Excise & Service Tax Appellate
Tribunal (CESTAT) was misdirected in
law in its interpretation of Rule 16 (1) of
the Central Excise Rules, 2002, by
unlawfully including scrapping within the
scope of Rule 16(1) of the Central Excise
Rules, 2002 ? Further, whether the
learned Customs, Excise & Service Tax
Appellate Tribunal (CESTAT) erred in
law by finding that the respondent -
assessee had lawfully availed CENVAT
credit in the offending transactions ?"

2.
"Whether
the
learned
Customs, Excise & Service Tax Appellate
Tribunal (CESTAT) was justified in law
to revoke the penalty imposed upon the
appellant under Rule 26 of the Rules by
the Order-in-Original dated 21st October,
2010 ?"

19. Rule 16(1) is germane to the
controversy and thus needs careful
consideration. For ease of reference, Rule
16 (1) of the Central Excise Rules, 2002,
is being extracted in its entirety:

"Rule 16. Credit of duty on
goods brought to the factory. - (1)
Where any goods on which duty had been
paid at the time of removal thereof are
brought to any factory for being re-made,
refined, re-conditioned or for any other
reason, the assessee shall state the
particulars of such receipt in his records
and shall be entitled to take CENVAT
credit of the duty paid as if such goods are
received as inputs under the CENVAT
Credit Rules, 2002 and utilise this credit
according to the said rules."

20. Rule 16 states the procedure and
eligibility to avail credit of duty on goods
brought
to
the
factory.
Various
ingredients of Rule 16(1) will now be
discussed.

21. Rule 16(1) is applicable to goods
on which duty had been paid at the time
of removal of such goods and the same
are brought back to the factory. The goods
are brought back to the factory for being
"re-made, refined, re-conditioned or for
any other reason". The assessee is also
required to state the particulars of such
receipt of goods in his records.

22. Once the above conditions are
fulfilled, the assessee becomes entitled
under Rule 16(1) to take CENVAT credit
of the duty paid on the returned goods as
if such goods are received as inputs under
the CENVAT Credit Rules, 2002. The
credit shall be utilised by the assessee
according to the latter Rules.

23. The purpose of manufacture of
goods in this case is sale. Bringing the
goods back to the factory after they have
been removed for sale does not ordinarily
4 All. Commissioner, Central Goods & Services Tax Commissionerage, Ghaziabad Vs. M/S International Tobacco Co. Ltd.
803
make good business sense. However, at
times for some valid reasons, the goods
cannot be sold or they are not fit for
retention
in
the
market.
In
such
circumstances, the goods may be recalled
and brought to the factory. In terms of
Rule 16(1), these goods are brought to the
factory for being "re-made, refined, reconditioned or for any other reason".
After being subjected to said processes,
the goods are again removed having
become saleable commodities and worthy
of acceptance in the market.

24. The phrase "or for any other
reason", in Rule 16(1) of the Central Excise
Rules, 2002, has to be necessarily read on the
construction canon of ejusdem generis. Any
other rule of interpretation would make the
Rule unworkable and defeat the clear
intention of the legislature.

25. The learned Customs, Excise &
Service Tax Appellate Tribunal (CESTAT),
proceeded to give a wide interpretation to the
phrase "or for any other reason" and thus
included the offending transaction within its
scope. The legislative intent was not to read
the phrase in isolation and give it such a wide
berth. Otherwise, there would be no
necessity to precede the phrase "or for any
other reason" by the three processes of "remade", "refined" and "re-conditioned". The
three preceding phrases depicting three
similar processes qualify and restrict the
scope of the phrase "or for any other reason".

26. While explaining the concept of
ejusdem generis this Court in Special
Appeal No.33 of 2019 in Gyanwati Devi v
State of U.P. and 5 others held:

"The reason is, when a general
word or phrase follows a list of specifies,
the general word or phrase will be
interpreted to include only items of the
same class as those already listed."

27. The phrase "for any other
reason" has to be interpreted in light of
the preceding expressions of "re-made,
refined, re-conditioned". The processes
coming under the category of "for any
other reason", have to be in the likeness of
the processes which immediately precede
the aforesaid phrase. All the processes
should have such similarities so as to be
constituted into the same class.

28. The legislature has employed the
words
"re-made",
"refined",
"reconditioned" and the phrase, "or for any
other reason" and eschewed the phrase
"for being scrapped". Understanding this
distinction is the key to interpreting the
scope
of "re-made", "refined", "reconditioned" and the phrase, "or for any
other reason".

29. The essential characteristics of
the brought back goods survive even after
they are "re-made", "refined" or "reconditioned". The original identity of the
goods is retained even after the goods
undergo the said processes.

30. When goods are scrapped, all the
constituent components of the goods may
be reclaimed. After scrapping, the original
identity of the manufactured goods
completely perishes. Scrapping of goods
is done for various purposes, including
cannibalisation and extraction of vital or
valuable parts of the original goods.

31. "Re-made", "refined" and "reconditioned"
are
processes
akin
to
manufacture; while scrapping involves
destruction of the original identity of the
goods. Scrapping is neither a species nor
804 INDIAN LAW REPORTS ALLAHABAD SERIES
in the likeness of "re-made", "refined" or
"re-conditioned".
Consequently,
when
goods are scrapped, it cannot be stated
that the said goods were brought to the
factory for being "re-made", "refined",
"re-conditioned", "or for any
other
reason" provided in Rule 16(1). Scrapping
of goods does not fall within the ambit
and scope of Rule 16(1).

32. Ordinary business prudence
requires that valid commercial reasons
must exist for bringing the goods back to
the factory. The validity of these reasons
is the test of the bona fides of the
assessee. These can be ascertained from
authentic records, relating to receipts of
goods and particulars contained therein.
Scrutiny of such records and the contents
of the receipts will help determine the
bona fides of the assessee to bring back
the goods.

33. Offending transactions and the
findings of the Assessing Officer as well
as learned Appellate Tribunal have to be
examined in the light of the true scope
and correct interpretation of Rule 16(1),
as stated in the preceding paragraphs of
this judgment.

34. We find that the learned
Appellate Tribunal, while interpreting the
phrase, "any other reason", in Rule 16(1)
and held that the same was "wide enough
to cover the case of the appellants".
Consequentially, the learned appellate
Tribunal included scrapping within the
fold of Rule 16(1).

35. It is evident that the learned
Appellate
Tribunal
has
incorrectly
interpreted the scope of Rule 16(1) by
bringing scrapping within the embrace of
Rule
16(1)
and
has
proceeded
to
legitimise the benefit of CENVAT availed
by the respondent - assessee. These faultlines vitiate the judgment of the learned
Customs, Excise & Service Tax Appellate
Tribunal (CESTAT), Allahabad. The
judgment of the learned Customs, Excise
&
Service
Tax
Appellate
Tribunal
(CESTAT),
Allahabad,
is
therefore
unsustainable in law.

36. The findings of facts returned by
the Assessing Officer thus attain finality
since
they
were
not
successfully
impeached by the learned Appellate
Tribunal. These findings extracted in
extenso in the earlier part of the judgment
are set forth, in brief, hereinafter to take
the discussion forward and to its logical
conclusion.

37. The cartons containing cigarettes
were not even opened and found in packed
condition. The alleged defects in goods, as
claimed by the assessee, thus could not be
ascertained without opening the cartons. The
goods were actually sent back to the same
purchasers in the self-same condition in which
they were received.

38. The receipts were not found to
be reliable. There are no records of the
reasons given by the purchasers for
rejecting the consignments of goods. On
this foot, the reasons for bringing back the
goods to the factory, as adduced by the
assessee, were disbelieved.

39. The scrapping of the goods stood
established by reliable evidence and
cogent findings in the record. The
assessee, in fact, scrapped the goods and
tried to pass it as "refining" the goods.

40. Clearly, the goods were not
brought back to the factory by the
4 All. Commissioner, Central Goods & Services Tax Commissionerage, Ghaziabad Vs. M/S International Tobacco Co. Ltd.
805
assessee to be "re-made", "refined", "reconditioned", "or for any other reason" as
contemplated in Rule 16(1) of the Central
Excise Rules, 2002. The transactions were
devices to illegally avail CENVAT credit.
The intent to illegal avail CENVAT credit
and escape duty was fully established.

41. In wake of the preceding
narrative, we find that the ingredients to
avail credit of duty of goods brought back
to the factory, as contemplated under Rule
16(1) of the Central Excise Rules, 2002,
were not satisfied. The assessee was not
entitled to avail the benefit of CENVAT
credit of the duty paid on the aforesaid
goods and illegally availed such credit.
The intent of the assessee to defraud the
revenue and escape tax is thus proved.

42.

The
controversy
in
the
connected Central Excise Appeal No.88
of 2019 (Commissioner, Central Goods
and
Service
Tax
Commissionerate,
Ghaziabad Versus R.K. Gupta) in respect
of imposition of penalty upon Sri
R.K.Gupta turns on the construction of
and observance of the ingredients of Rule
26 of the Central Excise Rules, 2002. For
facility of reference, Rule 26 is extracted
hereunder:-

"RULE 26. Penalty for certain
offences.--(1) Any person who acquires
possession of, or is in any wayconcerned
in transporting, removing, depositing,
keeping,
concealing,
selling
or
purchasing, or in any other manner deals
with, any excisable goods which he
knows or has reason to believe are liable
to confiscation under the Act or these
rules, shall be liable to a penalty not
exceeding the duty on such goods or [two
thousand rupees], whichever is greater:

(2) Any person, who issues-

(i) an excise duty invoice
without delivery of the goods specified
therein or abets in making such invoice;
or

(ii) any other document or abets
in making such document, on the basis of
which the user of said invoice or
document is likely to take or has taken
any ineligible benefit under the Act or the
rules made thereunder like claiming of
CENVAT credit under the CENVAT
Credit Rules, 2004 or refund, shall be
liable to a penalty not exceeding the
amount of such benefit or five thousand
rupees, whichever is greater."

43. Rule 26 of the Central Excise
Rules, 2002, has to be read in conjunction
with the findings of facts narrated in the
preceding part of the judgment. The
ingredients of Rule 26 for imposing the
penalty upon Sri R.K.Gupta, Deputy
General Manager (IT & Accounts), are
fully satisfied. The provisions of the Rule
26 have been duly adhered to. The order
imposing penalty against Sri R.K.Gupta
under Rule 26, is a lawful and just order,
in the facts and circumstances of this case.

44. Accordingly, the substantial
questions of law are answered against the
assessee and in favour of the Revenue in
the following terms:-

I. The learned Customs, Excise &
Service
Tax
Appellate
Tribunal
(CESTAT) was clearly misdirected in law
in its interpretation of Rule 16(1) of the
Central Excise Rules, 2002 by unlawfully
including "scrapping" within the scope of
Rule 16(1) of the Central Excise Rules,
2002. The learned Customs, Excise &
Service
Tax
Appellate
Tribunal
(CESTAT) also erred in law by finding
that the respondent - assessee had
806 INDIAN LAW REPORTS ALLAHABAD SERIES
lawfully availed CENVAT credit in the
offending transaction.

II. The learned Customs, Excise &
Service
Tax
Appellate
Tribunal
(CESTAT) was completely unjustified in
law by setting aside the penalty imposed
upon R.K. Gupta, in connected Central
Excise
Appeal
No.88
of
2019
(Commissioner,
Central
Goods
and
Service Tax Commissionerate, Ghaziabad
Versus R.K. Gupta), even in the face of
the fact that the ingredients of Rule 26 of
the Central Excise Rules, 2002, were fully
satisfied. R.K.Gupta, in law, was liable to
pay the penalty imposed in the Order-inOriginal passed by the Commissioner of
Customs, Central Excise & Service Tax,
Ghaziabad.

46. As a consequence, the judgment
of the learned Customs, Excise & Service
Tax
Appellate
Tribunal
(CESTAT),
Allahabad, dated 3rd April, 2018, is liable
to be set aside and is set aside. The
judgment
of
the
Commissioner
of
Customs, Central Excise & Service Tax,
Ghaziabad, dated 21st October, 2010, is
upheld to the extent and manner indicated
in the body of this judgment.

47. Both the appeals are accordingly
allowed.
----------
(2019)12 ILR A806

REVISIONAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 24.10.2019

BEFORE
THE HON'BLE SAUMITRA DAYAL SINGH, J.

Commercial Tax Revision No. 125 of 2013

L.G
Electronics
India
Pvt.
Limited,
Gautam Budh Nagar ...Revisionist
Versus
Commissioner of Commercial Taxes, U.P.,
Lucknow ...Opposite Party

Counsel for the Revisionist:
Sri Tarun Gulati, Sri Nishant Mishra, Sri Dev Nath

Counsel for the Opposite Party:
C.S.C.

A. Tax Law - Uttar Pradesh Trade Tax
Act, 1948: Sections 4-A - Interpretation
of
Statutes
-
The
rule
of
strict
construction may be applied only for the
purposes of determining the eligibility to
exemption and no further.

Provision granting incentive for promoting
economic growth and development in taxing
statues should be liberally construed and
restriction placed on it by way of exception
should be construed in a reasonable and
purposive manner so as to advance the
objective
of
the
provision.
(Para
26).
Assessee‟s application could not be rejected
merely because two separate applications had
been filed. (Para 19, 20 & 27)

The burden to establish single diversification,
is on the assessee and it was for the revenue
authorities to rebut such evidence as the
assessee may produce. (Para 27).

B. Distinguished from Kajaria Ceramics -
The Supreme Court did not lay any rule
of evidence required to be brought on
record for a single diversification or
expansion. No specific rule or evidence has
been prescribed either under the Act or the
Rule framed thereunder. It would remain a
matter to be considered and decided on the
facts of each case. The assessee was not
obliged to lead any particular evidence to
establish its claim or else to face rejection.
(Para 32 to 35)

In the present case, assessee has led evidence
in support of its case, and substantiated the
same by adducing corroborative evidence,
unlike Kajaria Ceramics, where not a single
piece of evidence was given. (Para 29, 30)

Matter
remitted.
(E-4)