By TIOL News Service

MUMBAI, AUG 19, 2013: THE Appellant is importing Chassis (fitted with engine and a cabin) from their Principals in Japan. The Motor Chassis are cleared on payment of Customs duty including CVD and SAD. The Appellant is taking the credit of CVD and SAD. After receiving the Chassis in their premises, they inspect the various parts of Chassis and in case any part is faulty, that part is replaced/repaired. Thereafter, certain parts like (a) Right hand outside rear view mirror. (b) Right hand turning signal and rear light; (c) Front panel and radiator (d) Front left hand suspension. (e) Front left hand shock absorber and (f) Antenna are fitted on the chassis. Appellant further fits parts and accessories as per the requirements of Central Motor Vehicle Act 1989 (CMV) and the rules made thereunder. Thereafter, the Chassis is dispatched to the job worker premises where the body building activities on the chassis are carried out.

For the period from May 2009 to August 2009, the appellant followed the procedure under notification 214/86 CE dated 25th March, 1986. From Sept 2009 to Nov 2009 appellant has been following the provisions of Rule 4(5) (a) of the CENVAT Credit Rules, 2004. After the job worker completes the body building, vehicle is received back in appellant's premises. Here again, appellant inspect, modify as per customer's requirement, test, paint and polish. They are clearing the same on payment of excise duty. They availed the CENVAT credit of CVD/SAD paid at the time import as also excise duty deposited by Job Worker (Sept 2009 to Nov 2009).

A Show Cause Notice was issued to the appellant for denial of the CENVAT Credit of Rs.4,80,79,916/- availed and utilized by them during the period June 2009 to November 2009. The CCE, Thane-I found it prudent to confirm the demand along with imposition of equivalent penalty and interest.

The allegation in the SCN and the findings in the O-in-O are - The main ground for denial of the credit is that there is no factory at the premises and it is only a parking slot/warehouse/godown. There are no plants, machinery, not even industrial power connection. Only activities that is being carried out in the said godown is receipt of the duty paid imported chassis, sending the same to job workers, receiving fully manufactured motor vehicle in all respect and fixing some minor accessories to meet the mandatory requirement as per the Central Motor Vehicle Rules, 1989. Appellant has no approvals from Maharashtra Pollution Control Board, MIDC, Factory Inspector, Forest department etc. and other statutory bodies etc. which are normally needed in a factory/manufacturing unit. Since there is no factory, no manufacturing activity is carried out and appellants cannot be considered as manufacturer and are therefore not entitled to the CENVAT Credit. In the impugned order, it was held that the activity of making certain minor fitments on the body of the vehicle carried out by the appellant cannot be considered as manufacture, and so, the credit availed by them and utilized is incorrect. Adjudicating authority also took the view that the definition of manufacture in the Central Excise Act is inclusive and flexible to interpret in the facts and circumstances of each case. Since the activity carried out by the appellant does not result in emergence of a new commercial commodity their activity cannot be considered as manufacture. In the impugned order, it was also held that the activity carried out by appellant for complying with the requirements of other laws/acts would not amount to manufacture unless the activities independently answered to the criteria set for by the Case Laws for interpretation of the word "Manufacture".

The appellant is before the CESTAT and explained at length the activities that were being carried out by them. It was also submitted that they were granted Registration Certificate as a Manufacturer;subsequently, the Range Officer visited the Appellant's premises for post Registration Verification where the entire processes were clarified to him; Range Officer was also explained that the Appellant would dispatch the goods on the final assembly value and would avail CENVAT Credit on the inputs. It was further submitted that in spite of the explanation, the Range Officer had given a Report that the Appellant factory is only a storage space for the chassis imported and the process undertaken in the appellant's factory does not amount to manufacture; that vide letter dated 27 th July, 2009 and 18 th August, 2009 appellant was asked to clarify the position which they had clarified, on 25 th August, 2009 and subsequently they had received the demand notice.

The appellant also submitted that the activities undertaken by them amounts to manufacture under section 2(f) of the CEA, 1944 and the CENVAT credit taken is in order. In support, they placed reliance on the decision in Rajasthan State Chemical Works - (2002-TIOL-66-SC-CX), Metro Ready Ware Ltd. Vs. Collector Customs, 1975 (2) ELT (1520) (Ker) CCE, Pune III vs. Ajinkya Enterprises - (2012-TIOL-578-HC-MUM-CX) and Creative Enterprises - (2008-TIOL-784-HC-AHM-CX).

The Revenue representative reiterated the findings of the lower authority and also added that even the Registration taken by the appellant was incorrect and the department has been objecting to it immediately on post verification of the premises.

In a lengthy order, the Bench liberally quoted from the following plethora of case laws cited by the appellant -

+ CCE Vs. Rajasthan State Chemical Works - (2002-TIOL-66-SC-CX)

+ Brakes India Ltd. Vs. CC.Ex., Chennai-III - (2007-TIOL-1167-CESTAT-MAD)

+ CC.Ex. Ahmedabad Vs. Prem Conductor - (2007-TIOL-2258-CESTAT-AHM)

+ Tata Iron & Steel Co. Ltd. Vs. Union of India & Ors - (2002-TIOL-434-SC-CX)

+ CCE Vs. Eastend Paper Industries Ltd. - (2002-TIOL-379-SC-CX),

+ CC.Ex., New Delhi Vs. Panchsheel Soap Factory - (2002-TIOL-22-CESTAT-DEL)

+ German Remedies Ltd. Vs. CCE, Mumbai-IV - (2003-TIOL-61-CESTAT-DEL)

+ CCE, Mumbai Vs. Johnson & Johnson Ltd. - (2002-TIOL-814-SC-CX)

and thereafter concluded thus -

"11. From the analysis of above case laws' we are of the view that whether a particular activity carried out by a person amount to manufacture or not or is only a process in a series of activities will have to be viewed in the facts and circumstances of each case. In the present case as mentioned earlier, appellant receives the chassis. Activities carried out by him is inspection of the same and fixing of some parts, if required and thereafter sending it to the job worker who undertakes the body building activities. The goods received form job workers are vehicles. Again inspection is carried out by the appellant and certain parts like kits etc. are fixed in order to comply with the Central Motor Vehicles Acts and Rules thereof. In our considered view, the activities undertaken by the appellant alone will not constitute manufacturing the vehicle, the final product. These activities are very minor in nature and would not entitle the appellants to be considered as manufacturer of motor vehicle. These activities may be needed to satisfy the requirements of Central Motor Vehicles Act or some other law but that will not amount to manufacture for excise purpose. We therefore hold that activities undertaken by the appellant will not amount to manufacture.

12. We observe that since the activity undertaken by the appellant does not amount to manufacture, appellant cannot be considered as a manufacturer and, therefore, not eligible to take the CENVAT Credit under Rule 3 of CENVAT Credit Rules 2004.

13. We now come to the next question viz. whether CENVAT Credit can be demanded when they have utilized the same for payment of duty on final products. We note that appellant has paid the duty at the time of clearance of the vehicles. Keeping in view the judgment of the Bombay High Court in the case of Commissioner of Central Excise, Pune III Vs. Ajinkya Enterprises reported in - (2012-TIOL-578-HC-MUM-CX) has observed as under:-

"10. Apart from the above, in the present case, the assessment on decoiled HR / CR coils cleared from the factory of the assessee on payment of duty has neither been reversed nor it is held that the assessee is entitled to refund of duty paid at the time of clearing the decoiled HR / CR coils. In these circumstances, the CESTAT following its decision in the case of Ashok Enterprises 2008(221) ELT 586 (T), Super Forgings - (2008-TIOL-312-CESTAT-MAD), S.A.I.L. 2007 (220) ELT 520 (T), M.P. Telelinks Limited - (2004-TIOL-77-CESTAT-DEL) and a decision of the Gujarat High Court in the case of CCE V/s. Creative Enterprises reported in - (2008-TIOL-784-HC-AHM-CX) has held that once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity does not amount to manufacture. Admittedly, similar view taken by the Gujarat High Court in the case of Creative Enterprises has been upheld by the Apex Court (see 2009 (243) E.L.T. A121) by dismissing the SLP filed by the Revenue".

Similar view has been taken by the Hon'ble High Court of Gujarat in the case of Commissioner of Central Excise & Customs, Surat-III Vs. Creative Enterprises reported in - (2008-TIOL-784-HC-AHM-CX).

In the present case there is no dispute that the duty on the final product has been paid by the appellants by utilizing the CENVAT Credit being demanded and department has not disputed payment of duty on vehicles, the CENVAT Credit availed cannot be demanded in spite of the fact that the activity undertaken by the appellant does not amount to manufacture.

14. In view of above, appeal is allowed."

In passing : We had while reporting the Stay order - (2012-TIOL-122-CESTAT-MUM) last January made the following opening remark - "A reading of this case will tell you the enormous manpower and valuable time the departmental officers may have spent in saddling the 'manufacturer' with a demand worth five Crores rupees - and all those efforts have gone in vain - well almost, because they fail to reconcile themselves with the fact that similar matters have always gone in favour of the opposite party."

Is it time for Section 5B of the CEA, 1944 to make its appearance after the next level of appeal is surpassed?

JAI HO, HINO!

(See 2013-TIOL-1232-CESTAT-MUM)