CX - Whether CENVAT credit on inputs can be allowed to be availed and further passed on to buyers despite activity of slitting and pickling on CR coils having been held by HC as not amounting to manufacture - Matter referred to TM: CESTAT
By TIOL News Service
NEW DELHI, APR 16, 2014: THE appellant is engaged in the process of slitting and pickling of HR coils and sheets. They avail CENVAT credit of the duty paid on HR coils/sheets and discharge duty on the HR slitted and pickled coils.
It is the case of the CCE, Delhi that the activity undertaken does not amount to manufacture and hence the appellant was not entitled to avail CENVAT credit on the alleged inputs.
Accordingly, a demand of Rs.37.04 crores has been confirmed along with imposition of an equivalent amount of penalty. The period involved is 01.02.2007 to 31.10.2009.
Before the CESTAT, the appellant submitted that they had relied on an umpteen number of Tribunal decisions laying down that inasmuch as duty was being paid on the final product cleared by the assessee, the entire exercise is Revenue neutral. However, these case laws were ignored by the adjudicating authority without giving any finding as to why the same are not applicable. It is further submitted that whereas the credit availed is around Rs.37 crores, the duty paid by them is around 42 crores. That since by using the said credit for payment of duty on the goods cleared by them, the same already stands reversed by them and as such, second time confirmation of the same without there being any whisper of the duty paid by them is neither justified nor warranted. And in the alternative such clearances may be considered as removal of inputs as such and hence the credit taken and reversed is proper in law.
The Revenue representative adverted to the provisions of section 5B of the CEA, 1944 introduced with effect from 11.05.2007 empowering the Central Government to issue notification for non-reversal of credit taken when the process is held by the Court as not chargeable to excise duty. That since such a notification has not been issued in respect of the impugned activity, the CENVAT credit cannot be allowed; that the decisions cited were rendered either prior to 11.05.2007 or have not considered the provisions of section 5B. Reliance is placed on the Board Circular 911/1/2010 -CX dt.14.1.2010 wherein it is mentioned thatthe assessee is at liberty to approach the Central Govt. for issue of appropriate notification u/s 5B of CEA, 1944 for regularization of the CENVAT credit availed. The Board Circular 940/1/2011 -CX dt. 14.1.2011 is also referred to emphasize that - ‘duty paid on exempted goods and collected from the buyers by representing it as "duty of excise" will have to be deposited with the Central Government in terms of Section 11D of the Central Excise Act, 1944 . Moreover, the CENVAT Credit of such amount utilized by downstream units also needs to be recovered in terms of the Rule 14 of the CENVAT Credit Rules, 2004'.
The Member (Judicial) observed that there is no quarrel about the proposition that the Delhi High Court in the case of Faridabad Iron & Steel Traders Association V/s. Union of India 2003-TIOL-79-HC-DEL-CX has held that the activities of cutting or slitting of steel sheet in coil is a non-manufacturing activity. Nonetheless adverting to the following decisions wherein it is held that " By utilization of credit for payment of duty which was not required to be paid, credit was effectively reversed and Revenue cannot once again ask for reversal of credit .", the Member (J) held that the appellant cannot be asked to once again reverse the credit so availed and so by setting aside the order of the CCE, Delhi allowed the appeal with consequential relief.Judgements relied upon are Creative Enterprises - 2008-TIOL-784-HC-AHM-CX (Revenue appeal dismissed 2009 (243) ELT A126 (SC) ), Vickers Systems International Ltd. 2008-TIOL-300-CESTAT-MUM ; Crompton Greaves Ltd. 2008-TIOL-1089-CESTAT-MUM, Sona Koyo Steering Systems Ltd. 2006-TIOL-1806-CESTAT-DEL, Narmada Chematur Pharmaceuticals Ltd. 2004-TIOL-113-SC-CX-LB, Narayan Polyplasts & ors . 2004-TIOL-110-SC-CX-LB
In the matter of the reference made to section 5B and the proposition that the appellant should have approached the Central government for issuance of a notification for regularization of the credit taken, the Member(J) observed -
"…It is clear that the powers to issue notification vests in the Central Government, in terms of the said section. This section does not cast any liability on the assessee to approach the Central Government for the issuance of such a notification. The question to be decided is as to whether when there is no such notification issued by the Central Government, in terms of the said section, whether, there would be any debarring for deciding the disputed issue in the light of the precedent decisions and in the legal manner. The answer would be an emphatic "No". Merely because, no notification stands issued under the said section by the Government of India, the assessee cannot be estopped from contesting the issue on merits. As already observed, the issue on merits stands decided by various Courts, which cannot be ignored and taken in light manner. Admittedly, the precedent decisions that too of Higher courts are required to be followed in terms of the judicial hierarchy and cannot be dismissed lightly on the ground that the provisions of section 5B were not considered in those judgments."
The Circulars cited by the Revenue representative viz. Circular 940/2011 was held to be of no applicability to the facts of the case as it pertained to exempted goods and as for the Circular 911/2010, it was observed that if the assessee does not approach the Central Government, the same cannot estopp him from pursuing the legal remedy before the Court's.
Holding that the Circulars issued by the Board cannot influence the judicial or quasi-judicial function and the disputed issue has to be decided independently by interpreting the law, the Member(J) held that is no merit in the submission made by the Revenue representative and accordingly set aside the Order-in-original and allowed the appeal.
The Member (Technical) had a differing view.
Relying on the Board Circulars 940/2011 and 911/2010, the Member (T) observed -
++ There was intention to avail credit without being eligible and such credit passed on to the buyer. Appellant deliberately resorted to practice to avail input credit because such inputs were dutiable and output was not dutiable and in case of exported goods no duty shall be leviable. It contravened the law resorting to recover the duty paid by it on inputs.
++ Law on the issue has been settled in 2003. It was clarified by the Board vide Circular dated 26.9.2007 issued from F.No. 931/1/2005-CX 3 that if a process does not amount to manufacture, duty is not required to be paid and no CENVAT credit of duty paid on inputs is available.
++ Appellants cannot be allowed to circumvent the legal position and presume an activity as manufacture and avail CENVAT credit on inputs forcibly and pay duty on finished goods not required to be paid under the law and then pass the credit to the buyer.
Holding that the activity undertaken by the manufacture has already been held as not amounting to manufacture by the Delhi High Court in the case of Faridabad Iron & Steel Traders Association 2003-TIOL-79-HC-DEL-CX, there is no question of granting input credit against such manufacture and, therefore, the order of the adjudicating authority is upheld while reducing the penalty to Rs.5 crore.
In view of the difference in opinion the matter is referred to the third Member for a Majority view.
In passing : One more reference for a Majority decision . Had only the Bombay High Court decision in Ajinkya Enterprises 2012-TIOL-578-HC-MUM-CX been taken cognizance of the result could have been different.
(See 2014-TIOL-575-CESTAT-DEL)
