By TIOL News Service

MUMBAI, JUNE 12, 2013: THE appellant is engaged in the manufacture of presser-cookers. They cleared the manufactured cookers to their Deport, C.F.A. in bulk cartons (containing many cookers) along with extra cartons (meant for repacking of the cookers independently) before dispatch to their whole sellers and distributors for sale. The appellant availed input tax credit (on such packing material) with the understanding and belief that the extra or individual cartons have been used in relation to the manufacture of final products. It is also their case that the cookers are not sold without the individual cartons as per the requirement and business practice of the appellant. Only for the sake of convenience, the cookers are removed from the factory in bulk packing along with the extra (single) cartons to its depot or C&F agent, which is not on sale. Thereafter, the cookers are repacked in the single cartons at the depot of the appellant from where they are dispatched to the whole sellers or distributors on sale. This practice was regularly being followed for several years and the same was in the knowledge of the department. Further, the packing material being extra-single cartons etc. were duly accounted for in the Books of Account as well as their value etc. duly reflected in the RG-23 register as well as in the monthly returns filed with the department. Further, case of the appellant is that all sales are made from deport or C.F.A. only, which are located at various places throughout India and there is no factory-gate sale. This practice is followed to safeguard the product form damage in transport and also to ensure that the customers get the product in a presentable form, as well as the carton being not in the mutilated form either. Further, the product has an MRP price under Section 4A which is all inclusive price i.e. the price of extra (single) cartons is also included.

The case of the department is that the packing material (extra carton etc.) was not used in the factory of production and hence CENVAT Credit of duty paid on such packing material was not available to the appellant in terms of CENVAT Credit Rules, 2004.

During the course of audit in the year 2004, it was pointed out by the department that the CENVAT Credit taken on the extra (master or single) cartons would not be allowed as the same was not used in the factory of production, but are used in the depot of the appellant for packing of the cookers.

The assessee immediately reversed the credit availed Under Protest totaling Rs. 6,25,561/- (for the period from April, 2001 to Sept. 2004 and for the period October, 2004 to May 2005).

After such reversal of duty, the department issued two SCNs for appropriating the amounts and for interest and penalty.

The matter then trudged its way up to the CESTAT and vide Order dated 02/01/2008 = (2008-TIOL-146-CESTAT-MUM), the Bench had held -

"5. I have considered the submissions. I find that the Commissioner (Appeals) had primarily denied the credit on the ground that the inputs were not used within the factory of production and as per Board Circular, credit is admissible when the inputs / capital goods are used within the factory premises except when used for jobwork outside the factory premises. I find that the Apex Court has in the case of Vikram Cement (cited supra) very clearly held that the credit cannot be denied merely on the ground that the inputs are not used within the factory of the production and clearly stated that the definition under Rule 57AA and other rule nowhere places any such restrictions. All that has to be considered is whether inputs were used in or in relation to the manufacture of final products. The moot question in present case is whether the master cartons which are cleared from the factory alongwith the goods but are used for packing at the depot can be considered to be used in or in relation to the manufacture of final products. In this regard I note that the depot has been defined as place of removal only with effect from 13.5.2003 and prior to that the place of removal was factory only. Since prior to 13.5.2003 the goods were packed in primary cartons and transported in that condition only, the master cartons cannot said to be used in or in relation to manufacture of the final product when the same were used at depots only. Accordingly, I hold that the credit in respect of these cartons will not be available prior to 13.5.2003.

6. Subsequent to 13.5.2003 since the depot has been defined as a place of removal and goods for the first time are sold from depot as there is no other sale at the factory gate, the master cartons have to be considered as have been used in or in relation to the manufacture of final products and the credit of duty paid on such master cartons cannot be denied. Once cost of such additional packing at depot has been considered to be inclusive in the assessable value as per the CESTAT decision in the case of Clariant (India) (cited supra), there is no reason why such packing should not be considered has been used in or in relation to the manufacture of final products, when the definition of the inputs includes packing material as well. I, therefore, hold that after 13.5.2003 the credit on such master cartons shall be available.

7. As regards the plea of limitation, I find that the plea has been taken before both the lower authorities and the Commissioner (Appeals) but no finding on the same has been given. Since this requires examination as to what sort of information and declaration were filed and whether this matter was within the knowledge of the department or not and whether there was any intention to evade payment of duty at all, the matter is required to be remanded back to the original authority to look into the aspect of the limitation and give its findings thereon. The remand is for the limited purpose of looking into the plea of limitation only.

8. The appeal is partly allowed by way of remand as per above terms."

Aggrieved with the same, the Revenue carried the matter before the Bombay High Court in Central Excise Appeal No.26 of 2010, which was dismissed, upholding the order of the Tribunal.

Be that as it may, the adjudicating authority, in remand proceedings, held that ‘mere knowledge of the department regarding the availment of CENVAT credit on packing material by itself is not sufficient to allege that the department was aware of the fact that the said packing materials were used outside the factory or were being sent to the depot or the C&F agent premises'. Holding that the extended period of limitation is applicable in the case he confirmed the demand of Rs.2,73,465/- for the period prior to 13.05.2003 and imposed equivalent penalty and interest.

The Commissioner(A) too upheld this order and hence the appellant is before the CESTAT in the second round of proceedings.

Whereas the appellant made his submissions on the limitation issue, the Revenue representative kept on harping on the CENVAT eligibility issue per se.

The Bench observed -

"10.1 So far the merits of eligibility of the CENVAT Credit of the input material (packing materials) in question is concerned, the issue is settled by this Tribunal in view of the ruling of the Apex Court in the case of Vikram Cement (supra), which has been followed by this Tribunal in the case of Clariant (India) Ltd. Vs. Commisisoner of Central Excise, Thane - (2006-TIOL-286-CESTAT-MUM). Further, in the facts and circumstances considering the case laws relied upon by the parties, I hold that no case of any suppression or mis-declaration or any contumacious conduct is made out against the appellant, and accordingly, it is held that the extended period of limitation is not available. Accordingly, the demand confirmed of Rs.2,73,365/- is set aside and quashed. Further, in the facts and circumstances, no penalty is attracted and accordingly penalty imposed and interest levied are set aside."

In fine, the appeal was allowed with consequential relief.

(See 2013-TIOL-882-CESTAT-MUM)