Jyoti Balasundaram, Vice-President - The assessees herein are engaged in the manufacture of cut tobacco and different brands of cigarettes and avail Cenvat credit on inputs, capital goods and input services in terms of the Cenvat Credit Rules, 2004. They have submitted a series of letters of the jurisdictional Superintendent from time to time informing the quantum of cigarettes received back for reprocessing for the reasons that the cigarettes were not fit for marketing, were not saleable in the market as the stock received was exuding bad smell and that the tobacco inside the cigarettes had dried up and, therefore, not fit for marketing. The so-called non-marketable/non-saleable cigarettes were received by the assessees from various places under cover of forwarding challans. The department was of the view that the assessees were receiving the so-called non-marketable/non-saleable cigarettes returned by their own sales offices only in order to enjoy the benefit of credit in terms of Rule 16 of the Central Excise Rules, 2002 which was not available to them. Show cause notices dated 5-12-2007 and 21-8-2009 were issued proposing recovery of duty of Rs. 1,73,944/- and Rs. 6,81,54,095/- respectively under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A(l) of the Central Excise Act, 1944, together with recovery of interest under Section 11AB ibid for taking inadmissible credit, and proposing penal action against the assessees. The notices were adjudicated by the Commissioner, Ghaziabad who confirmed the demands raised in both notices, imposed penalty of equal amount, and ordered for recovery of interest. Hence these applications for waiver of pre-deposit and stay of recovery of the amounts in dispute.

2. We have heard both sides. Rule 16(1) of the Central Excise Rules, 2002 provides that "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 utilize this credit according to the said rules". In the face of the clear language of the above rule, the finding of the Commissioner that 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 is prima facie not tenable. Further, in the present case, a large percentage of tobacco (obtained by ripping open returned cigarettes) is used along with fresh tobacco in the manufacture of fresh cigarettes. Thus, prima facie, the assessees are entitled to credit in terms of Rule 16 and the duty demand is prima facie not sustainable in the light of Rule 16 and in the light of the decision of the Tribunal in Supreme Industries Limited v. CCE, Chandigarh reported in 2005 (189) E.L.T. 453 and Hindalco Industries Limited v. CCE, Belapur reported in 2007 (215) E.L.T. 547.

3. We, therefore, waive the deposit of the duty, interest and penalty and stay recovery thereof pending the appeals.