Custom, Excise & Service Tax Tribunal
M/S. Brakes India Limited vs Cce, Chennai-Ii on 2 May, 2008
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/762/2005
(Arising out of Order-in-Appeal No. 25/2005 (M-II) dated 14.06.2005 passed by the Commissioner of Central Excise (Appeals), Chennai)
For approval and signature
Honble P. KARTHIKEYAN, Member (Technical).
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M/s. Brakes India Limited : Appellant
Vs.
CCE, Chennai-II : Respondents
Appearance Shri M. Kannan, Adv., for the appellants.
Dr. Nitish Birdi, SDR, for the respondent.
CORAM Shri P. KARTHIKEYAN, Member (Technical) Date of hearing : 02.05.08 Date of decision : 02.05.08 Final ORDER No.________/2008 The subject appeal challenges the order of the Commissioner (Appeals) which confirmed the order of the original authority ordering recovery of wrongly availed credit of Rs. 1,82,454/- and demanding appropriate interest. He reduced the penalty of Rs. 18,000/- imposed under Rule 13(1) of the Cenvat Credit Rules, 2002, to Rs.5,000/-.
2. The facts of the case are that M/s. Brakes India Ltd.(BIL), the appellant herein took cenvat credit of duty paid on hose assembly received from M/s. Witchitra Auto Ltd. (WAL), Ambattur, during 05/2003 to 03/2004. The credit was utilized for removing other goods manufactured by it. The assessee exported the consignments of hose assembly received from WAL. Before the lower authorities the appellant had argued that they had received hose assemblies and before exporting them under bond the same were subjected to processes of testing, inspection and packing. These processes had amounted to manufacture. Therefore, they were eligible for credit of duty paid on hose assemblies. The Rule 13 of erstwhile Central Excise Rules, 1944 and Rule 19 of CER 2001/2002 treated the processes such as testing, packing as processes of manufacture in relating to goods exported under bond. It was submitted that before inspection and testing the hose assembly did not attain marketability. Therefore, the inputs were subjected to processes amounting to manufacture and the impugned credit was legitimately available to them.
3. The Commissioner (Appeals) relied on letter F.No. 267/61/2001-CX8 dated 31.01.2002 dated which had clarified that goods were procured solely for the purpose of export and were not used in the manufacture of final products, the credit was not available. The Commissioner (Appeals) observed that before the original authority the appellants had not pressed the claim that the processes of inspection, testing and packing of hose assemblies for export did not constitute manufacture. He also relied on the decision of the Tribunal in the case of CCE, Chennai Vs. KCP Ltd. reported in 2003 (161) ELT 589 (Tri.-Chen.), where it was laid down that bought out goods which were exported could not be considered as inputs qualifying for modvat credit. Accordingly, he confirmed the demand and interest under Rule 12 of CCR, 2002, which expressly authorized recovery of such credit and interest for the delay in paying it back to the Government.
4. Before the Tribunal, the main ground taken is that the process of testing, inspection and packing of hose assemblies for export amounted to manufacture and duty paid on hose assemblies was admissible as modvat credit when such tested and packed goods were exported under bond. It is also submitted that modvat credit was admissible when inputs were exported under bond. If the appellants had operated as merchant exporter under Rule 18 of erstwhile CER, they would have received as a rebate the duty paid on the goods when they were exported. Credit was available of duty paid on any goods received in the factory for any reason Rule 16 (2) of CER 44 provided for availing credit when any goods are cleared from the factory on payment of duty. The Rules could not conceive of all possible situations. It was the policy of the Govt. to relieve the goods exported of all domestic taxes. There was no case for penalty.
5. The Ld. Counsel relies on the decision of the South Zonal Bench of the Tribunal in the assessees own case reported in 2007 (214) ELT 380 (Tri.-Chen.). In the said decision, BIL manufactured rough castings from pig iron, steel scrap, chemicals etc. and got job workers to machine them and paint them into automotive parts. Thereafter, the goods were subjected to testing and export packing and cleared for export under bond. It was held that the goods impugned therein had become fully manufactured in the premises of the appellant before they were exported and that the impugned order demanding cenvat credit availed by the appellants, interest there on and imposing penalties was not sustainable. It was also held that ultra sonic testing of the goods to ensure quality, export packing etc. were incidental to completion of manufacture before they were exported. Those processes were the final steps in a series of processes involved in the manufacture of the impugned goods starting with pig iron/steel scrap and continued with the work undertaken by the job worker.
6. The Ld. SDR reiterates the findings contained in the impugned order.
7. I have carefully considered the facts of the case records and the submissions by both sides. The cenvat scheme is intended to obviate the requirement of the assessee having to pay duty on that part of its cost of final product representing the duty paid on inputs. The cenvat credit Rule 3 provides for availing credit of duty paid on inputs for payment of duty on the final products manufactured using the inputs. The rules do not bar such inputs also being cleared on payment of duty from the factory. However, the rules do not provide for an assessee taking credit of duty paid on inputs which are not used in the manufacture of final products and are procured solely for export under bond. Such transactions are not intended to be covered by the cenvat scheme.
8. In the case of Brakes India Ltd., cited by the assessee, most of the manufacturing operations related to the goods exported had been carried out by BIL. The argument that the hose assemblies became marketable only on testing and packing cannot be countenanced. The fact that a merchant exporter getting a rebate of duty paid when he exports similar goods, there should not be any objection to the assessee receiving the same benefit is not an acceptable argument, as the transactions are covered by specific statutory scheme. Rule 16 of CCR, 2001 does not provide for purchase of consignments of inputs for export under bond.
9. The lower appellate authority has cited these statutory provisions in support of his decision to uphold the demand of modvat credit and interest. He passed the impugned order following the ratio of CCE Vs. KCP Ltd., (supra). He has also modified the penalty to a reasonable Rs.5000/-, which is in accordance with Rule 13 (1) of CCR, 2002. In the circumstances, the appeal filed by BIL is dismissed as devoid of merit.
(Dictated and pronounced in open Court) (P.KARTHIKEYAN) MEMBER (T) BB 2