Custom, Excise & Service Tax Tribunal
Sathavahana Ispat Limited vs Tirupati - G S T on 13 February, 2019
(1) Appeal No. E/30725/2018
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Single Member Bench
Court - I
APPEAL No. E/30725/2018
(Arising out of Order-in-Appeal TTD-EXCUS-000-APP-175-17-18, dated
28.03.2018 passed by CCT&C, Guntur)
SATAVAHANA ISPAT LIMITED .. APPELLANT
Vs.
CCT, TIRUPATI GST .. RESPONDENT
Appearance Ms. S. Vishnu Priya, Advocate for the Appellant.
Shri N. Bhanu Kiran, Asst. Commissioner /AR for the Respondent. Coram:
Hon'ble Mr. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing: 13.02.2019 Date of Decision: 13.02.2019 FINAL ORDER No. A/30206/2019 [Order per: Mr. P.V. Subba Rao]
1. This appeal is filed against Order-in-Appeal No. TTD-EXCUS-000-
APP-175-17-18, dated 28.03.2018. The facts of the case in brief are that the appellant is engaged in the manufacture of pig iron from iron ore and avail CENVAT Credit under CCR 2004. The process of manufacture of pig iron involves breaking lumps of iron ore into smaller parts and feeding them into the blast furnace for manufacture of pig iron. In this process, very small fine particles of the ore fall out which are known as Iron Ore Fines.
(2) Appeal No. E/30725/2018 The appellant was served a notice stating that in the process of manufacture of their final product, the iron ore fine are also manufactured which are exempted under notification No. 4/2006-CE, dated 01.03.2006. But for the exemption notification, the iron ore fines covered under Chapter Heading 2601 1130 to 260111140 attract tariff rate of 12% duty. Since the iron ore fines are exempted and the CENVAT Credit is availed on inputs used in manufacture of their final product as well as iron ore fines, they are required to reverse 6% of the value of the iron ore fines in terms of Rule 6(3A) of CCR 2004.
2. After following due process, the Ld. Lower authority confirmed the demand of Rs. 46,87,791/- in respect of the iron ore fines which were cleared by the appellant during the period September 2011 to March 2015 under Rule 6(3) of CCR 2004 read with Rule 14 and Section 11A(5) of Central Excise Act, 1944. He also confirmed a demand of interest on the aforesaid amount under section 11 A and impose a penalty under Section 11 AC of Central Excise Act 1944 read with Rule 15(2) of CCR 2004. Aggrieved, the appellant appealed to the first appellate authority who upheld the Order-in-Original in toto and rejected the appeal. Hence this appeal.
3. Ld. Counsel for the appellant submits that the two tests which must be passed before a product gets charged to central excise duty are (a) manufacture and (b) marketability. As far as the products in question are (3) Appeal No. E/30725/2018 concerned, there is no doubt that iron ore fines which emerge during the process of manufacture in their factory are marketable and are indeed sold. The second test is the process of manufacture. They have no intention to manufacture iron ore fines and they are not undertaking any process to manufacture fines. The fines only emerge as a by product during the process of manufacture of their final product namely sponge iron. Therefore, they cannot be held to have manufactured iron ore fine even though iron ore fines are specifically listed as an excisable product under Central Excise tariff. She argues that whether or not the notification exists, they are not liable to pay Central Excise duty on the iron ore fines because they do not manufacture them. The Rule 6(3) of CCR 2004 only requires one to reverse the CENVAT Credit on the common inputs and common input services used in the manufacture of both exempted and dutiable products. Since they are not manufacturing Iron Ore Fines, they cannot be considered as exempted excisable products. She relies on the case of Maa Mangla Ispat Pvt. Ltd. [2013(293)E.L.T. 380 (Tri.-Del.)], Seleno Steels Limited [2013(287)E.L.T. 93 (Tri.-Del.)], Nav Durga Fuels Pvt. [2016(340)ELT 526 (Tri.-Del.)] and Aarti Sponge & Power Limited [2017(350)E.L.T. 268 (Tri.-Del.)] and asserts that in all these cases on the identical issue, it has been held that iron ore fines which emerges during the process of manufacture of sponge iron from iron ore are not manufactured and no CENVAT credit on the common inputs and input services used needs to be reversed under Rule 6(3) of CCR 2004 with respect to the iron ore fine sold by such manufacture. She asserts that (4) Appeal No. E/30725/2018 their case is identical. She also contests the demand on the question of limitation and draws the attention of the Bench to the para No. 13 of the show cause notice which shows that the only basis for issuing the show cause notice is their own letter to the department dated 17.04.2015. Thus, they themselves have disclosed their activity which forms the basis of the demand and that they cannot be alleged to have suppressed or misstated any facts to invoke the extended period of limitation. On the same ground, they are also not liable to any penalty. She therefore prays that the appeal may be allowed and the impugned order may be set aside.
4. Ld. DR reiterates the findings of the lower authority and the first appellate authority. He submits that notification No. 6/2015-CE (NT), was issued on 01.03.2015, para 4 of which inserted an explanation to Rule 6(1) of the CCR 2004 as follows:
"Explanation-1 - For the purpose of this rule, exempted goods or final products as defined in clauses (d) and (h) of Rule 2 shall include non-excisable goods cleared for a consideration from the factory".
5. Although the notification was issued on 01.03.2015, it is his assertion that this is only an explanation and hence is clarificatory in nature and has to be applied to cases prior to issue of this notification as well. He further argues that the entire manufacturing process of iron ore begins with breaking of iron ore into smaller parts and feeding them into blast furnace. This process of breaking iron ore lumps itself is integral part of manufacturing process and it cannot be treated as a process separate from the manufacture. Therefore, iron ore fine which emerges during the process of breaking of iron ore lumps into smaller parts are to be (5) Appeal No. E/30725/2018 considered as emerging out of manufacture. Therefore, iron ore fines are indeed manufactured by the appellant, as a joint product along with pig iron. The iron ore fines have also been specifically mentioned in the Central Excise Tariff and therefore should be considered s excisable goods. But for the exemption notification, they would have been liable to pay excise duty. Because of the exemption notification, they were exempted and therefore the appellant is liable to reverse the proportionate amount of CENVAT Credit or pay the amount under Rule 6(3) of CCR 2004 for using common input and input services. He therefore prayed that the appeal may be rejected.
6. I have considered the arguments on both sides and perused the records. The issue to be decided in brief is whether the iron ore fines are to be treated as excisable goods manufactured by the appellant which are exempted by virtue of exemption notification and correspondingly whether an amount needs to be reversed under Rule 6(3) of CCR 2004. It is the case of the appellant that they are not manufacturing iron ore fines which only emerged during the process of manufacture of final product pig iron. It is the case of Revenue that manufacture of pig iron is a process which begins with breaking of iron ore lumps which results more than one product and therefore these are joint products of which pig iron is chargeable to excise duty while the second product iron ore fines are exempted by virtue of exemption notification. It is the case of the appellant that they are not manufacturing iron ore fines at all. I find that in identical matters coordinate the Benches of Tribunal have taken a view in the case of Maa (6) Appeal No. E/30725/2018 Mangla Ispat Pvt. Ltd. (Supra), Nav Durga Fuels Pvt. Ltd. (supra), Soleno Steels Ltd. (supra) and Aarti Sponge & Power Limited (supra). It was felt in all these cases that reversal of CENVAT Credit under Rule 6(3) of CCR 2004 is not necessary with respect to iron ore fine which emerges during the process of iron ore. I respectfully follow the ratios of these decisions. I have also considered the contention of Ld. DR that w.e.f. 01.03.2015, the reversal under Rule 6(1) of CCR is necessary even in respect of non excisable goods which are cleared for consideration from the factory. I find it so. I, however, do not agree with his contention that his explanation is deemed to have retrospective effect in the absence of any specific intention on the aforesaid notification. Therefore, post 01.03.2015, even for iron ore fines, reversal of CENVAT Credit is necessary. As the matter is a decided matter on merits, I find no need to go into the question of limitation. Accordingly, I find the impugned order is liable to be set aside and I do so.
7. The impugned order is set aside and the appeal is allowed.
(Dictated and Pronounced in open court on 13.02.2019) (P. VENKATA SUBBA RAO) MEMBER (TECHNICAL) vrg