CX - Revenue alleging that activity does not amount to manufacture and hence credit availed should be reversed - Once duty on final products has been accepted by the department, CENVAT credit availed need not be reversed: CESTAT
By TIOL News Service
MUMBAI, APR 24, 2014: THE appellant is a registered manufacturer of colour coated steel coils and sheets and aluminium colour coated coils and sheets. Some of the inputs used by the appellant are GP coils, Galvanised coils, CR/HR coils, aluminium coils, paint and other pre-treatment chemicals.
During the month of March 2010 there was shortage of iron and steel rolled products and there was an upswing in the prices of MS flat rolled products in sheet form. Accordingly, since the appellant had available stock of MS/GP in coil form, they decided to liquidate/reduce the stock. They converted the said MS/GP coils into cut to size sheets as per customers' specifications by subjecting the same to degreasing, cleaning, de-coiling and cutting to sheet as per size. This job was done by using the existing line of production for the third line meant for cut to length and the fourth line for slitting within the factory premises. The appellant cleared such cut to size sheets on payment of excise duty. Such activity was also done during the month of October 2010 and January 2011.
A SCN dated 30/03/2011 was issued alleging that the activity of de-coiling the sheets, cutting to length, shearing and other activity like de-greasing, cleaning, etc. did not amount to manufacture and amounted to removal of inputs as such and accordingly the CENVAT credit availed was proposed to be disallowed for Rs.3,64,02,946/- u/r 14 of CCR, 2004. Similar SCN was also issued on 01/11/2011 for similar activity for the month of October 2010 and January 2011 asking to show cause as to why CENVAT credit of Rs.14,41,390/- be disallowed.
The CCE, Raigad was more than pleased to confirm the demands and impose equivalent penalties etc.
Before the CESTAT the appellant inter alia submitted that the situation is revenue neutral and there is no loss of revenue as the appellant had cleared the goods with value addition which had resulted in payment of excess duty to the tune of Rs.50,40,102/- paid from PLA (Rs.4,31,30,855/- minus Rs.3,78,44,226/-). Moreover, the SCN itself mentions that the appellant cleared the goods in question after value addition on the inputs and that the credit availed on input was at rate less than the duty rate at which the final products were cleared by the appellant. Inasmuch as the above allegation itself proved that the inputs were not cleared as such.
Reliance is also placed on the decision in Ajinkya Enterprises - 2012-TIOL-578-HC-MUM-CX wherein it is held that once 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. The Gujarat High Court decision in Creative Enterprises - 2008-TIOL-784-HC-AHM-CX is also adverted to.
The Revenue representative narrated the o-in-owherein the adjudicating authority had observed that the appellant was holding Central Excise registration and as the goods were cleared without any manufacturing activity then the same would be covered under the provisions of rule 3(b) of the CCR, 2004 which lays down the provision for removal of inputs without carrying out any manufacturing process; and since the appellant have not followed the relevant procedure it is bound to reverse the CENVAT credit availed on the inputs in question and thus prays for upholding the impugned order.
The Bench did not find it prudent to spend much time on the now settled issue.
It held -
"7. …we find that there is definitely some value addition involved as the goods in question have been removed at a higher rate of duty resulting into additional duty to the exchequer of Rs.50.40 lakhs. Further, we find that the facts and circumstances of the present case are squarely covered by the ruling of the Hon'ble Bombay High Court in the case of Ajinkya Enterprises (supra)…."
Suffice to say that the order of CCE, Raigad confirming the humungous demand of Rs.3,78,44,226/- with equivalent penalty was set aside with consequential relief.
The appeals were allowed.
In passing: Another of those high value demands bites the dust! Also see - 2014-TIOL-575-CESTAT-DEL.
(See 2014-TIOL-628-CESTAT-MUM)
