By TIOL News Service

MUMBAI, JUNE 02, 2016: THIS is a Revenue appeal filed in the year 2005.

The fact of the case is that the respondent is engaged in the manufacture of 'Copper Coating CO2 Mig Welding Wire of Steel' out of the duty paid alloy steel wire rods.

The process involved is - the steel wire rod [Chapter 7227.90 and 7228.30] is drawn into steel wire. Then this redrawn wire is further copper coated and wound in spools and sold as "Copper Coated CO2 Mig Welding Wire", which is normally used as welding electrode in wire form.

The respondent availed Cenvat Credit on duty paid wire rods and cleared the welding wire on payment of duty.

It is the contention of the department that the processes undertaken by the respondent do not amount to manufacture u/s 2(f) of the CEA, 1944 in the light of the Supreme Court decision in Technoweld Industries - 2003-TIOL-37-SC-CX and, therefore, no CENVAT credit could have been possibly availed by the respondent.

The adjudicating authority confirmed the demand but the Commissioner (A) took a view that the processes undertaken is not a simpliciter activity of drawing of wire as in the case of Technoweld Industries but a further process is involved of pickling /washing/copper coating and buffing in a separate heated copper coating machine and ultimately rewinding. Inasmuch as the activity is manufacture u/s 2(f) of the CEA, 1944 and the credit has been correctly taken.

As mentioned, Revenue is in appeal against this order of the Commissioner (A).

Before the CESTAT the AR reiterated the stand of the department and placed reliance on a host of case laws, notably Technoweld Industries - 2003-TIOL-37-SC-CX, Tega India Ltd. - 2004-TIOL-17-SC-CX & UPM Kymmene India Pvt. Ltd. - 2015-TIOL-1172-CESTAT-MUM.

The respondent assessee submitted that the process involved is not only drawing of wire but it involves pickling of wire annealing and copper coating;that the resultant product is welding wire, therefore, it is not a case of only drawing of wire from wire rod, but it involves the manufacturing of welding electrode in wire form from the steel wire rod and hence the judgment in case of Technoweld Industries (supra) does not apply; that even if it is presumed that Cenvat Credit is not admissible but since the respondent has cleared the processed goods on payment of duty, the Cenvat credit availed stands paid back.

The Bench observed -

"5. … We find that even without going into the aspect of manufacturing if it is presumed that the activity does not amount to manufacture the Cenvat Credit is admissible in terms of Rule 16 of the Central Excise Rules, 2002 which is reproduced below:

Rule 16. Credit of duty on goods brought to the factory. -

(1) 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 utilise this credit according to the said rules. 

(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.

Explanation : - The amount paid under this sub-rule shall be allowed as CENVAT credit as if it was a duty paid by the manufacturer who removes the goods.

(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.

From the above rule, it is clear that the assessee is entitled to avail Cenvat credit on the duty paid goods even though the said duty paid goods does not undergo manufacturing process. The only condition is that if the duty paid goods is cleared after process which amounts to manufacture, the assessee is required to pay duty on the transaction value and if the goods are cleared without manufacturing process the duty which required to be paid is equal to the Cenvat credit availed. Rule 16 also holds the duty paid goods as inputs therefore the Cenvat credit is admissible."

Noting that the issue has been settled by the judgments inter alia Punjab Lighting Aids - 2015-TIOL-1172-CESTAT-MUM, Venus Wire Industries Ltd. - 2008-TIOL-242-CESTAT-MUM, the Bench concluded thus -

"…From the above judgments it can be seen that the Credit was regularized in case of wire drawing units as per the amendment made in Rule 16 of Central Excise Rules. We are also of the view that even in the absence of specific amendment in respect to the wire drawing unit, the credit was otherwise admissible as per un-amended Rule 16 of Central Excise Rules, 2002. As per the above discussion and case laws, we are of the considered view that the respondent was entitled for the Cenvat Credit…"

The Revenue appeal was dismissed.

In passing: Also see Ajinkya Enterprises - 2012-TIOL-578-HC-MUM-CX .

(See 2016-TIOL-1315-CESTAT-MUM)