Custom, Excise & Service Tax Tribunal
M/S. Trimex Sands Pvt. Ltd vs Cce, Visakhapatnam-I on 12 September, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench DB Court I Appeal No.E/2123/2012 (Arising out of Order-in-Original No.VIZ-CEX-001-058-12 dt. 28/03/2012 passed by CCE, Visakhapatnam-I) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Honble Shri Madhu Mohan Damodhar, Member(Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s. Trimex Sands Pvt. Ltd. ..Appellant(s) Vs. CCE, Visakhapatnam-I ..Respondent(s)
Appearance Shri Ashok Deshpande, Advocate for the appellant.
Shri Nagraj Naik, Deputy Commissioner(AR) for the respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Honble Shri Madhu Mohan Damodhar, Member(Technical) Date of Hearing:02/08/2016 Date of decision: FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.] The facts of the case as put forth by the appellant briefly are as below:
a. The appellant is engaged in the activity of separating valuable mineral sands from ordinary sea sand. The process of separation leads to manufacture of rutile concentrate, ilmenite concentrate, zircon concentrate/semi concentrate, garnet concentrate and silimanite concentrate. According to appellant, a major portion of their final products are being exported and the balance is cleared in the domestic market. The Appellant availed CENVAT Credit of the duty paid on inputs, capital goods and input services. The Appellant has been clearing their products to domestic market upon payment of duty and for exports without payment of duty under Letter of Undertaking.
b. The Department issued a show cause notice alleging that since there is no manufacture, there is no duty liability on the aforesaid minerals ( finished products) and hence the availment of CENVAT Credit and payment of duty on the mineral by utilising CENVAT Credit for domestic clearance and for export under claim for rebate and subsequent sanction therefore appears to be erroneous. The show cause notice therefore proposed to treat CENVAT Credit of Rs. 4,59,05,807/- taken for the period September 2009 to March 2011 as having been taken wrongly and also proposed that CENVAT Credit of Rs. 1,41,58,285/- lying in balance should lapse (not to be utilized at all) as the same pertains to the period during which the activities undertaken by the appellant does not amount to manufacture.
c. The Adjudicating authority passed the Adjudication Order dated 28.03.2012 and held that as the process does not amount to manufacture, there is no duty liability on the final products i.e., mineral concentrates and confirmed the proposals in the SCN . Hence this appeal.
2.1. On behalf of the appellant Ld Counsel Shri Ashok Desh Pandy submitted that the following facts are undisputed:
* That the Appellant is registered with the Central Excise Department.
* That the appellant had carried out certain processes on the sand procured.
* That the appellant had paid duty on the various inputs and input services procured by them.
* That the appellant is clearing the finished goods for home consumption on payment of duty as well as for export on payment of duty under claim of rebate and also without payment of duty under LOU.
* That the appellant had exported a major part of their final products.
* That the Department had collected the duty so paid by the Appellant on finished products without any issues.
* That the entitlement of CENVAT Credit is not questioned by the Department.
Therefore when the department has not disputed on the above facts, they cannot now question the utilisation of CENVAT Credit.
2.2. Ld Counsel further submits that it is no more res integra that CENVAT Credit cannot be denied on the ground that there is no manufacture and the final product is not excisable. He placed reliance on a number of judgements, inter alia, the following, in this regard.
i) In Hino Motors Sales India Pvt. Ltd. V/s. CCE, 2014 (299) ELT 49 (T-Mum.).
ii) Anutone Acoustics Ltd. V/s. CCE, 2013 (298) ELT 246 (T-Mum.)
iii) CCE V/s. Ajinkya Enterprises, 2012-TIOL-578-HC-MUM-CX, Manufacture.
iv) CCE&C V/s. Annapurna Industries Pvt Ltd., 2010 (255) ELt 197 (Guj.) Refund of Credit.
v) CCE&C V/s. Creative Enterprises, 2009 (235) ELT 785 (Guj.) Maintained by Supreme Court in CCE V/s. Creative Enterprises, 2009 (243) ELT A 120 (SC).
3. On behalf of the respondent department, Ld. AR Shri Nagraj Naik reiterated the findings in the impugned order. Ld. AR also drew our attention to the ratio of the Tribunal decision in Indian Rare Earths Ltd V/s CCE [2002(139) ELT 352 [Tri-Kolkata)] wherein it was inter alia held that in the process of concentrating rare mineral sands dredged out by physical and mechanical process from ordinary sand no manufacturing is involved. He submitted that applying the ratio of this decision, the process carried out by appellants cannot be treated as manufacture and hence CENVAT Credit on any inputs cannot be availed by them. That the findings of the Commissioner that CENVAT credit of Rs.4,59,05,807/- taken by appellants on inputs, capital goods and input services during the period September 2009 to March 2011 is legal and proper. However, since the process of conversion of ores to concentrates is manufacture as per the Chapter Notes (CETA, 1985) from 2011 onwards, the appellants are eligible to avail CENVAT credit from this date (31/03/2011).
4. Heard both sides and have also gone through the facts and records of the case.
5. In our view, the issues that need to be considered are three fold, namely:
a) Whether the process carried out by the appellants results in manufacture of an excisable product;
b) In case there is no manufacturing involved, whether CENVAT Credit already utilized for payment of duty on final products can be denied or required to be reversed;
c) After such payment of duty through CENVAT account, whether credit lying in balance will lapse.
6.1. Coming to the first issue, it is seen that the process carried out by appellant of separating valuable mineral sands from ordinary sea sand, as per their own admission vide letter 03.08.2011, involves the following:
i. Feed preparation stage, where oversize debris, shell and natural waste materials removed from the slurry made of raw sands and water.
ii. In the pre-concentration process, spirals, clarifiers, wet-screen and hydro cyclones are used for separation of heavy minerals from the gangue (feed preparation silica sand) iii. The third and final stage is Mineral Separation Stage, where dried mineral concentrates are further processed to extract the product through electrostatic, magnetic and mechanical process.
6.2. As correctly analysed by the adjudicating authority at the end of this process the chemical structure of the one remained the same; there was no crystallographic transformation and hence the process will not amount to manufacture.
6.3. Identical process carried out by Indian Rare Earths Ltd had been held as not involving any manufacture in the case of India Rare Earth Ltd. Vs. Commissioner [2002(139) ELT 352 (Tri.)] cited by the Ld AR supra. Appellants have argued that the appeal by Department was dismissed by the Honble apex Court only on technical ground that Committee on Disputes have declined permission to CBEC to pursue the appeal. Be that as it may, the fact remains that the dismissal by the Honble apex Court will have the effect of the earlier Tribunal decision continuing to be in force.
6.4. In any case, even a subsequent Tribunal decision reiterated the very same view in the case of Kerala Minerals & Metals Ltd V/s CCE Kochi. [2007 (214) ELT 556 (Tri-Bang)], the relevant portion of which is extracted below:
3.The learned Counsel submits that the issue is covered by the judgment in the case of Indian Rare Earths Ltd. v. CCE, BBSR-I - 2002 (139) 352 (Tri.-Kolkata) where rare mineral sands were subjected to physical and mechanical process for separation of chemicals. Such process was held to be not a process of manufacture as no separate goods were brought into existence. It is his submission that separation of Illmenite, Rutile and Zircon in the Mineral Separation Unit of the appellant factory will not be classifiable under CSH 2614 and 2615 as held by the original authorities but they continue to be as ore concentrate. The denial of benefit of Notification 4/97-C.E., dated 1-3-1997 is also not justified. It is his submission that the two units viz. (i) Mineral Separation Unit and (ii) Titanium dioxide pigment unit are registered under the (i) Mines Act, 1932 and (ii) Factories Act, 1948 respectively. After separation, the items are sent to their other unit where separate processes takes place and for removal of those goods, duty is being discharged. The duty at the present stage of mere separation of the three items will not lead to bringing into existence a new product as there is no chemical change taking place. He submits that the judgment of Indian Rare Earths Ltd. is not distinguishable.
4. The learned JDR pointed out that the judgment of Indian Rare Earths Ltd. is distinguishable as in that case, the rare mineral sand was dredged out by physical and mechanical process from ordinary sand into concentrated ores and they were held to be not by a process of manufacture as the chemical structure remained the same. However, he submits that in this case, the ores are brought by magnetic, electrostatic and gravity process to bring into existence minerals like illmenite, Rutile and Zircon. They have to be classified under the respective headings and charged to duty by denying the benefit of the exemption notification. He submits that the findings recorded by the Commissioner (Appeals) is justified.
5.We have carefully considered the submissions and have perused the ruling of Indian Rare Earths Ltd. cited by the counsel. The said ruling refers to 2 cases. Hyderabad Industries Ltd. v. U.O.I. - 1995 (78) 641 (S.C.); Mineral and Metals Trading Corporation of India Ltd. v. U.O.I. - 1983 (13) 1542 (S.C.). In the present case, the appellants are merely carrying on the activity of separating the minerals from the beach sand. The situation is similar to the one of the cited cases viz. Indian Rare Earths Ltd. wherein also the process of separation was from the beach sand to bring out rare mineral sands by physical process and mechanical process. In the present case also, the minerals which are present in the beach sand are separated by magnetic, electrostatic and gravity process. These minerals continue to remain as minerals in the same form. They had not changed their identity nor are they known by a different name in the market. There is no chemical or physical change in the mere characteristics. Therefore, the judgment of Indian Rare Earths Ltd. case, which is based on to 2 Supreme Court judgments, clearly applies to the facts of the case. Respectfully following the same, the impugned orders are set aside and appeals are allowed with consequential relief, if any.
7. Therefore, following the ratio laid in these judgments, we are able to conclude that the activity during the relevant period does not amount to manufacture.
8. During the relevant period (September 2009 to March 2011) the appellants took CENVAT credit to the tune of Rs.4,59,05,807/- on inputs, capital goods and input services. Further an amount of Rs.1,41,58,285/- pertaining to the credit taken on inputs, capital goods & input services was lying in their CENVAT account as balance (as on 31/03/2011). Coming to this issue, there are a plethora of judgements which have ruled that once duty on final product is accepted by Department, CENVAT credit cannot be reversed even if said activity does not amount to manufacture. In any case, the adjudicating authority has already acknowledged a few such decisions and held that the CENVAT credit of Rs. 4,59,05,807/- availed and utilized by the appellant for payment of duty on domestic and export clearances is not recoverable. However in the order portion the authority has not specifically mentioned this aspect, presumably due to oversight.
8.1. Coming to the issue concerning lapsing of unutilised credit, appellant defends this raising the contention that utilisation of CENVAT credit was not questioned by department and that there is no provision in law for lapsing of credit applicable to their case. In our view, appellants are wrong on both counts. The adjudicating authority may have very well conceded the non-recoverability of CENVAT credit utilised for payment of duty, and rightly so, as discussed above; but that does not ipso facto enable the appellant to hold on to unutilised credit which was not legally permitted to be availed. Secondly, the CENVAT Credit Rules 2004 does contain a provision, is Rule 11(3) thereof, to cover this very situation, as will be seen from the reproduction which follows:
(3) A manufacturer or producer of final product shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if,-
i) he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under section 5A of the Act; or
ii) the said final product has been exempted absolutely under section 5A of the Act, and after deducting the said amount from the balance of CENVAT Credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported.
8.2. The said provision would meet situations in which there is different periods of exigibility to excise duty and non-exigibility to duty. The law is thus very clear on this point, hence unutilised credit in the appellants case cannot be allowed for any further payment of duty and will necessarily lapse. So the claim of the appellant that the CENVAT credit lying in their balance, which was taken when the process was not manufacture, cannot be allowed to pay duty for finished products after 2011 when the process is treated as manufacture as per new Chapter Notes.
8.3. Boards circular no 911/01/2010CX dated 14/01/2010 has clearly instructed in para 3(i) therein, that in cases where the process undertaken by an assesse indisputably does not amount to manufacture, the department should inform the assessee about the correct legal position and advise him not to pay duty and not to avail credit on inputs. 8.4. In our view, issue of the Show Cause Notice on 06.09.2011, should suffice as sufficient information to the appellant and they should have suo moto & voluntarily reversed the unutilised credit irregularly availed. Appellants have not done so, instead, they are seeking to hang on to credit which is not legally due to them ab initio. This is certainly not only unfair in equity but also unjust is law. In view of the discussions supra, we are of the considered opinion that the order of the lower authority holding that the CENVAT credit of Rs. 1,41,58,285/- lying in balance should lapse, is correct in law.
8.5. With regard to the penalty levied of Rs. 2000/- under Rule 15 of CENVAT Credit Rules 2004, in view of the discussions supra we set aside the same.
9. In the event, it is ordered as follows:
i. CENVAT credit of Rs. 4,59,05,807/- availed and utilised for payment of duty on domestic and export clearances is non-recoverable. ii. CENVAT Credit of Rs. 1,41,58,285/- lying in balance is CENVAT Credit account as on 31-03-2011 shall lapse. iii. Penalty of Rs. 2000/- imposed by adjudicating authority is set aside.
10. Appeal partly allowed on above terms.
(Pronounced in open court on .) MADHU MOHAN DAMODHAR MEMBER(TECHNICAL) SULEKHA BEEVI C.S. MEMBER(JUDICIAL) Raja.
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