Custom, Excise & Service Tax Tribunal
M/S Asian Clour Coated Ispat Ltd vs Cce, Delhi-Iii on 29 September, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI PRINCIPAL BENCH, COURT NO. III Excise Appeal No. 2793-2794, 2827/2011-EX[DB] [Arising out of Order-In-Original No. 19/CE/PKJ/CCE/ADJ/2011 dated 05.09.2008 passed by CCE, Delhi-III] For approval and signature: Honble Ms. Archana Wadhwa, Judicial Member Honble Mr. Manmohan Singh, Technical Member 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes M/s Asian Clour Coated Ispat Ltd. Appellants 2. Sh. Vikash Aggarwal, 3. P.S. Chauhan, A.S. Vs. CCE, Delhi-III Respondent
Appearance:
Shri B.L. Narsimhan and Hemant Bajaj, Advocate for the Appellants Ms. Ranjhana Jha, AR for the Respondent CORAM:
Hon'ble Ms. Archana Wadhwa, Member (Judicial) Hon'ble Mr. Manmohan Singh, Member (Technical) Date of Hearing: 06.08.2013 Date of Decision:29.09.2014 INTERIM ORDER NO._179-181/2014_ FO/53801-53803/2014 Per Archana Wadhwa:
The Commissioner vide his impugned order has confirmed duty of Rs. 37,03,91,917/- along with imposition of penalty of identical amount by denying them the benefit of Cenvat credit of duty availed on HR coils and sheets which have undergone the process of slitting and pickling by the appellant and are converted into HR slitted and pickled coils. The said demand stand confirmed on the ground that the activity undertaken by the appellant does not amount to manufacture and as such the appellant was not entitled to avail the benefit of Cenvat credit of duty paid on the inputs.
2. Ld. Advocate appearing for the appellant draws our attention to umpteen number of Tribunals decision laying down that inasmuch as duty was being paid on the final product cleared by the assessee, the entire exercise is Revenue neutral. He submits that though all the above decisions were placed before the adjudicating authority, he has chosen to ignore the same and has not given any finding as to why the same are not applicable. He also clarifies that whereas the credit availed by them is to the extent of around Rs. 37 crores, the duty paid by them on the final product is around 42 crores. As such, he submits that by using the said credit for payment of duty on the goods cleared by them, the same already stands reversed by them and as such, second time confirmation of the same without there being any whisper of the duty paid by them is neither justified nor warranted. He draws our attention to various decisions, wherein under similar circumstances, denial of credit order was set aside.
3. Ld. Jt. CDR appearing for the Revenue reiterates the findings of the adjudicating authority and submits that once the process undertaken by the appellant does not amount to manufacture, the availment of the credit of duty paid on the inputs, which is permissible only when the said input are used in the manufacture of the dutiable final product, cannot be held to be in accordance with law, She specifically mentions the reasoning of the adjudicating authority that once such credit is allowed and is used by the assessee for payment of duty on the final product, their buyers become entitled to the credit of the same. She also draws our attention to the provisions of Section 5(B), which were introduced with effect from 11.05.2007 empowering the Central Government to issue notification for non-reversal of such credit. She submits that all the decisions rendered by the Courts were either prior to 11.05.2007 or have not considered the provisions of Section 5(B). In as much, the Government of India has not issued any notification under the said section, the benefit of credit cannot be allowed. She further relied upon two Circulars of the Board, being circular no 911/1/2010-CX dt. 14.1.2010 and 940/1/2011-CX dt. 14.1.2011, which enables the assess to approach the Government for issuance of notification under Section 11(B). As such, she raises the following points:-
i) Erroneous credit has been availed.
ii) Unnecessary amount has been paid in the guise of duty. Allowing the inadmissible credit by considering the payment of duty as reversal of credit amounts to correcting a wrong act by indulging in another wrong act.
iii) Not clear whether refund has been availed or not.
iv) The exercise would not be revenue neutral as credit has been erroneously passed on to buyers who would further pass on the credit.
4. In his rejoinder ld. Advocate submits that credit to the buyers is in any case admissible even if it is treated as clearance of the input as such.
5. After hearing the submissions made by both the sides we find that the activities of cutting or slitting of steel sheet in coil has been held as non manufacturing activity by the Hon'ble Delhi High Court in the case of Faridabad Iron & Steel Traders Association V/s. Union of India 2004 (178) E.L.T. 1099. There is no quarrel about the above proposition. The appellants were availing the credit of duty paid on the various inputs used in the manufacture of their final product and was utilizing the said Cenvat credit in discharge of duty of their final product. Revenue, on the ground that the said activity does not amount to manufacture, denied the credit of around Rs. 37,03, 91,917/- availed by them during the period 1-2-2007 to 31-10-2009 and utilized by making debit entries, towards excise duty on their final product. In addition to utilization of the said Modvat credit, the appellant also paid duty in cash to the extent of around six crores. However, the Revenue, while denying the Cenvat credit is absolutely silent about the duty paid by the assessee on their final product, which they were not required to pay on account of the process undertaken by them, not being a manufacturing process.
6. As such, the issue required to be decided in the present case is as to whether such availment of credit, which already stand utilized by them for payment of duty on their final product is required to be denied to them, as held by the lower authorities or no duty is required to be confirmed against the appellant, by denying the credit, as contended by the learned Advocate.
We find that there are number of decisions by the Tribunal, as upheld by the higher Courts which have dealt with the identical issue and have held that the Cenvat credit availed in respect of inputs is not to be denied on the ground that activity undertaken by the assessee does not amount to manufacture. Reference can be made to Gujarat High Court decision in the case of CCE V/s. Creative Enterprises 2009 (235) ELT 785 (Guj.) wherein the Hon'ble High Court held that The Tribunal is justified in holding that if the activity of respondent-cum assessee does not amount to manufacture their can be no question of levy of duty and if duty is levied, Modvat credit cannot be denied by holding that there is no manufacture. The Revenues further appeal before the Hon'ble Supreme Court was dismissed as reported in 2009 (243) ELT A126 (SC). Reference can also to be made to be Tribunal order in the case of PSL Holdings Ltd. V/s. CCE, Rajkot, 2003 (156) ELT 602 (Tri.-Mumbai) wherein it was held as under By utilization of credit for payment of duty which was not required to be paid, credit was effectively reversed and Revenue cannot once again ask for reversal of credit.
7. In another decision of the Tribunal in the case of Vickers Systems International Ltd. V/s. CCE, Pune-I 2008 (229) E.L.T. 298 (Tri. - Mumbai) has held in the fact of the case where the credit availed is utilized for payment of duty, paid at the time of clearance of the goods, the same has to be treated as reversal of credit. The entire credit availed on imported inputs to be considered as utilized towards payment of duty on sale of such imported goods and further credit reversal is not required. Similarly in the case of Crompton Greaves Ltd. V/s. CCE, Mumbai-III-2008 (230) E.L.T. 488 (Tri. - Mumbai), it was held that the imported superior parts were not further manufactured upon except repacking which does not amount to manufacture. The clearance of such goods on payment of duty is to be treated as reversal of alleged ineligible credit and the demand made by the lower authorities on the said ground was held as not sustainable. To the similar effect is another decision of the Tribunal in the case of Sona Koyo Steering Systems Ltd. V/s. CCE, Delhi 2007 (5) S.T.R. 15 (Tri.-Del.) and the decision in the case of Hansa Tubes Pvt. Ltd. V/s. CCE, Chandigarh 2013 (293) E.L.T. 382 (Tri. Del.). In the latter case, the Tribunal held that Cenvat credit cannot be denied to the assessee on the ground that process of galvanization does not amount to manufacture. Accordingly, the demand raised for disallowing the Cenvat credit on C.R. coils and zinc was held unsustainable as Cenvat credit Rules, 2004 allow the clearance of inputs as such or after partially processing on reversal of Cenvat credit availed on these inputs.
8. Similarly, we may also take note of another decision of the Hon'ble Gujarat High Court in the case of CCE V/s. Delta Corporation 2013 (287) E.L.T. 15 (Guj.) laying down that credit could not be denied on ground that no manufacturing activity was carried on by the assessee. Similarly, the Hon'ble Supreme Court in the case of CCE, Vadodara Vs. Narmada Chematur Pharmaceuticals Ltd. 2005 (179) E.L.T. 276 (S.C.), by taking note of their earlier decision in the case of CCE, Ahmedabad V. Narayan Polyplasts & ors. has observed that the wrongly availed credit utilized for payment of duty and inasmuch as the duty paid and the credit availed were of identical amount, the consequence would be Revenue neutral.
9. The undisputed facts on record are that the appellants were availing the benefit of the Cenvat credit of duty paid on the input materials and were paying the duty of excise on their final product on the full value of the coated pipes. As such the credit availed by them was being utilized for payment of duty on the full value of the pipes. By adopting such an exercise, the credit availed by the appellants is reversed by way of utilizing the same for payment of duty on the final product which they were not required to pay. In these circumstances, in our views, the credit availed by the appellants and utilized by them for the purpose for which the same was not required to be utilized, already stands reversed by them. As such, they cannot be asked to once again reverse the credit so availed. Accordingly, we set aside the impugned order and allow the appeal with consequential relief to the appellants.
10. We also find that there are various decision of the High Court and the Hon'ble Supreme Courts, as discussed above and we are of the view that the Cenvat credit availed by the assessee is not required to be confirmed against them inasmuch the same already stands reversed by debiting the same for payment of duty on their final product and as such the entire situation becomes Revenue neutral.
11. Learned JCDR appearing for the Revenue, has not been able to shows us any contrary decision. However, learned JCDR has drawn our attention to the provisions of section 5(B) of the Central Excise Act 1944, which were introduced with effect for 115 2007. For better appreciation of the said section, we reproduced the same:-
Section [5B. Non-reversal of CENVAT credit Where an assessee has paid duty of excise on a final product and has been allowed credit of the duty or tax or cess paid on inputs, capital goods and input services used in making of the said product, but subsequently the process of making the said product is held by the court as not chargeable to excise duty, the Central Government may, by notification order for non-reversal of such credit allowed to the assessee subject to such conditions as may be specified in the said notification:
Provided that the order for non-reversal of credit shall not apply where an assessee has preferred a claim for refund of excise duty paid by him:
Provided further that the Central Government may also specify in the notification referred to above for non-reversal of credit, if any, taken by the buyer of the said product. The contention of the learned JCDR is that the said section has not been considered in any of the judgments relied upon by the appellant. It is her submission that once a statutory provision exist in the act, the same should not be ignored and the appellant, instead of challenging the impugned order before the Tribunal, should have approached the Board for issuance of notification under said section.
On going through the said section, we find that the same empowers the Central Government to issue a notification, allowing credit of duty paid on the inputs and used for the manufacture of the final product, which also stand cleared on payment of duty subject to certain conditions. It is clear that the powers to issue notification vests in the Central Government, in terms the said section. This section does not cost any liability on the assessee to approach the Central Government for the issuance of such a notification. The question to be decided is as to whether when there is no such notification issued by the Central Government, in terms of the said section, whether, there would be any debarring for deciding the disputed issue in the light of the precedent decisions and in the legal manner. The answer would be an emphatic No. Merely because, no notification stands issued under the said section by the Government of India, the assessee cannot be estopped aspect from contesting the issue on merits. As already observed, the issue on merits stands decided by various Courts, which cannot be ignored and taken in light manner. Admittedly, the precedent decisions that too of Higher Courts, are required to be followed in terms of the judicial hierarchy and cannot be dismissed lightly on the ground that the provisions of section 5B were not considered in those judgments.
12. Similarly we find no merits in the contention of learned JCDR that in terms of the Circular No. 940/01/2011-CX dated 14.01.2011 and Circular No. 911/01/2010-CX dated 14.01.2011, the appellant was not entitled to the benefit of the Cenvat credit. It is seen that Circular No. 940 is in respect of the goods which were exempted in terms of notification issue under Section 5A of the Central Excise Act. As such same as no applicability to the present issue where the process undertaken by the appellant has been held to be not a manufacturing process. As regard circular No. 911/1/2010-CX., dated 14-1-2010, the same is in respect of the instruction issued to the lower authorities. For better appreciation we reproduce the same:-
Reference has been received from field formations stating that though certain activities including connectorising, testing, repacking and relabeling of feeder cables, cutting of HR/CR coils into sheets or slitting into strips do not amount to manufacture, such processors are taking Cenvat credit and justifying their Cenvat availment on ground that they are paying duty on final products.
2. The matter has been examined. As per the provisions of Rule 3 of the CENVAT Credit Rules, 2004, read with Rule 6, credit of duty paid on the inputs is allowed only if these inputs are used in the manufacture of a final product. The Board vide Circular dated 26-9-2007 issued from F. No 93/1/2005-CX3, had clarified that if the process does not amount to manufacture, duty is not required to be paid and hence no Cenvat credit of duty paid on inputs is admissible. Attention is also invited to the provisions of Section 5B of the Central Excise Act, 1944, where an assessee, who has paid excise duty on a product under the belief that the same is excisable, but subsequently the process of making the said product, is held by the Court as not amounting to manufacture, in such cases, the Central Government may issue an order for non-reversal of such credit in past cases.
3. In view of above, following instructions are issue:-
(i) In cases where the process undertaken by an assessee 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.
(ii) If the assessee has already paid duty, and in a situation where there is no manufacture as held by the Courts subsequently, and facts of the case are covered by the provisions of Section 5B of the Central Excise Act, 1944, the assessee is at liberty to approach the Central Govt. for issue of appropriate notification for regularization of the Cenvat credit availed.
4. Trade & Industry as well as field formations may be suitably informed.
5. Receipt of this circular may kindly be acknowledged.
6. Hindi version will follow.
13. As is seen from above the same is in reference to the notification required to be issued by the Central Government under the provisions of Rule 5B and gives liberty to the assessee to approach the Central Government for issuance of appropriate notification. However, as already held that if the assessee does not approach the Central Government, the same cannot estopp him from pursuing the legal remedy before the Courts. In any case these circulars issued by the Board and their effect has been considered by the Hon'ble Delhi High Court in the case of Faridabad Iron & Steel Traders Association 2004 (178) E.L.T. 1099 (Del.) wherein it stand held by the Hon'ble Court:-
93. In Orient Paper Mills v. Union of India reported as 1978 (2) E.L.T. (J345) (S.C.) = AIR 1969 SC 48 their Lordships of the Supreme Court has laid down that quasi judicial authorities should not allow their judgment to be influenced by administrative considerations or by the instructions or directions given by their superior. Therefore, instructions issued by the Board are not binding upon the adjudicating authority.
94. The impugned Circular was issued by the executive and sent to all Chief Commissioners of Central Excise, all Director General of Central Excise, all Commissioners of Central Excise (Appeals) and all Commissioners of Central Excise. Some of these bodies discharge quasi judicial functions. It is the settled position of law that quasi judicial functions cannot be controlled by executive actions by issuing circulars. It is totally impermissible. According to the spirit of Section 37B circulars or directions can be issued in order to achieve the object of uniformity and to avoid discrimination. Such circulars bind the officers only when they act in their administrative capacity. It must be clearly understood that the Boards circulars instructions or directions cannot in any manner interfere with quasi judicial powers of the Assessing Officers. Officials exercising quasi judicial powers must ignore any circular or direction interfering with their quasi judicial functions.
95. Whenever any authority is conferred with the power to determine certain questions in judicial and / or quasi judicial manner, the authority is required to exercise the power conferred upon him as per his own discretion. This is the essence of judicial and quasi judicial function. The authority exercising such powers cannot be influenced by any directions, instructions or the Circulars that may be issued by any other agency. Consequently, the Circular issued by the respondents cannot be permitted to interfere with the discretion of the judicial and quasi judicial authorities.
96. The power to impose tax is essentially a legislative function and according to our constitutional scheme it cannot be delegated. The Excise Duty which the legislature intends to impose must be imposed directly in accordance with law. By issuing the impugned circular the respondent cannot introduce revenue legislation indirectly. The impugned circular also deserves to be quashed on this ground also.
14. As seen from above, the circulars issued by the Board cannot influence the instructions judicial or quasi judicial function and the disputed issue has to be decided independently by interpreting the law. As such we do not find any merits in the above contention of the learned JCDR.
15. In view of the forgoing discussion, we deem it fit to set aside the impugned order and allow the appeal with consequential relief to the appellant. We order accordingly.
(Pronounce in the open Court on) (Archana Wadhwa) Member (Judicial) (Manmohan Singh) Member (Technical) Jyoti* Appeal No. E/2793-2794, 2877/2011-EX(DB) M/s Asian Clour Coated Ispat Ltd. Vs. CCE, Delhi-III Per Manmohan Singh
16. I have gone through the draft order recorded by learned Member (Judicial) wherein appeals of the appellant have been allowed by setting aside the Order-in-Original. The Commissioner vide his impugned order confirmed duty of Rs.37,03,91,917/- along with identical amount of penalty. Also denied benefit of Cenvat credit of duty availed on HR coils/ sheet which have undergone the process of slitting and pickling not amounting to manufacture.
17. Facts stated draft order has been gone through Learned Member set aside the impugned order on the ground of revenue neutrality following the decision of Honble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India reported in 2004 (178) ELT 1099. Reference was also made to Honble Gujarat High Court decision in the case of CCE Vs. Creative Enterprises - 2009 (235) ELT 785 (Guj.) Further reference was also made to the judgement of Honble Gujarat High Court in the case of CCE Vs. Delta Corporation 2013 (287) E.L.T. 15 (Guj.) and Supreme Court in the case of CCE Vododara Vs. Narmada Chematur Pharmaceuticals Ltd. 2005 (179) E.L.T. 276 (S.C).
18. I do not agree with the reasons given by learned Member (J) to allow appeal for which this separate order is passed by me.
19. Basic issue involved in the impugned order under consideration is whether when activities of cutting or slitting of steel sheet in coil is considered as not amounting to manufacture is these any justification to allow Cenvat credit on inputs to pass the same ultimately to the buyers.
20. It is settled law that if an activity carried out does not amount to manufacture within the framework of section 2 (f) of Central Excise Act, 1944 no stretch of imagination, that shall be manufacture without satisfying legislative mandate. If there is manufacture law permits availing of Cenvat credit on the inputs used for such manufacture. But because an assessee assumes an activity to be manufacture that does not confer right on him to avail input credit under the law. In the case of CCE Vs. Creative Enterprises 2009 (235) ELT 785 (Guj.) because both the parties agreed the activity to be manufacture, allowing of Cenvat credit against duty liability on the goods manufactured remained unquestioned by Honble High Court. That judgement makes clear that no one can assume an activity to be manufacture and mere assumption does not confer right to Cenvat credit.
21. Issue is also settled in terms of the Circular No. 940/01/2011-CX dated 14.01.2011 and Circular No. 911/01/2010-CX dated 14.01.2011 in this regard. For ready reference both circulars are reproduced Circular No. 911/1/2010-CX., dated 14-1-2010 F.No. 267/116/2009-CX8 Subject : Irregular availment of Cenvat credit on certain activities not amounting to manufacture - Regarding.
Reference has been received from field formations stating that though certain activities including connectorising, testing, repacking and relabeling of feeder cables, cutting of HR/CR coils into sheets or slitting into strips do not amount to manufacture, such processors are taking Cenvat credit and justifying their Cenvat availment on ground that they are paying duty on final products.
2.?The matter has been examined. As per the provisions of Rule 3 of the CENVAT Credit Rules, 2004, read with Rule 6, credit of duty paid on the inputs is allowed only if these inputs are used in the manufacture of a final product. The Board vide Circular dated 26-9-2007 issued from F. No. 93/1/2005-CX3, had clarified that if the process does not amount to manufacture, duty is not required to be paid and hence no Cenvat credit of duty paid on inputs is admissible. Attention is also invited to the provisions of Section 5B of the Central Excise Act, 1944, where an assessee, who has paid excise duty on a product under the belief that the same is excisable, but subsequently the process of making the said product, is held by the Court as not amounting to manufacture, in such cases, the Central Government may issue an order for non-reversal of such credit in past cases.
3.?In view of above, following instructions are issued :-
(i) In cases where the process undertaken by an assessee 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.
(ii) If the assessee has already paid duty, and in a situation where there is no manufacture as held by the Courts subsequently, and facts of the case are covered by the provisions of Section 5B of the Central Excise Act, 1944, the assessee is at liberty to approach the Central Govt. for issue of appropriate notification for regularization of the Cenvat credit availed.
4.?Trade & Industry as well as field formations may be suitably informed.
5.?Receipt of this circular may kindly be acknowledged.
6.?Hindi version will follow.
Circular No. 940/1/2011-CX., dated 14-1-2011 Subject: Application of Provisions of Section 5A(1A) of the Central Excise Act, 1944 Regarding Attention is invited to Boards Circular No. 937/27/2010-CX., dated 26.11.2010 issued from F.No. 52/1/2009-CX 1 (Pt.) [2010 260 E.L.T. T3], wherein based on the opinion of the Law Ministry, it was clarified that in view of the specific bar provided under sub-section (1A) of Section 5A of the Central Excise Act, 1944, the manufacturer cannot opt to pay the duty in respect of unconditionally fully exempted goods and he cannot avail the CENVAT credit of the duty paid on inputs.
2. It is further clarified that in case the assessee pays nay amount as Excise duty on such exempted goods, the same cannot be allowed as CENVAT Credit to the downstream units, as the amount paid by the assessee cannot be termed as duty of excise under Rule 3 of the CENVAT Credit Rules, 2004.
3. The amount so paid by the assessee on exemption goods and collected from the buyers by representing it as duty of excise will have to be deposited with the Central Government in terms of Section 11D of the Central Excise Act, 1944. Moreover, the CENVAT Credit of such amount utilized by downstream units also needs to be recovered in terms of the Rule 14 of the CENVAT Credit Rules, 2004.
4. Trade & Industry as well as filed formations may be suitably informed.
5. Receipt of this circular may kindly be acknowledged
6. Hindi version will follow.
22. Learned Member (Judicial) held, that even if there is no manufacture and the Cenvat credit is taken and subsequently duty payment is made, it should be deemed to reversal does not stand to reason. Non-reversal of credit could be as per provisions of Section 5B under notification issued by the Central Government. Notification can be issued only in those cases where duty is levied by the department which is later contested and finally not confirmed by appellate authorities. This is not the situation in the present case. Contention that duty was paid on a higher value for which input credit can be availed can not find favour of law. It is also observed that Circular No 911/01/2010-CX dated 14.01.2011 is in respect of the goods where assessee has paid excise duty on a product under the belief that same is excisable but later it is held by Court not amounting to manufacture, Central Govt. may issue an order for non-reversal of such credit in pass cases. There is noting on record to show that Appellants have followed the provisions of section 5B. Relevant extract is reproduced as below.
SECTION 5B Non-reversal of CENVAT credit where an assessee has paid duty of excise on a final product and has been allowed credit of the duty or tax or cess paid on inputs, capital goods and input services used in making of the said product, but subsequently the process of making the said product is held by the court as not chargeable to excise duty, the Central Government may, by notification, order for non-reversal of such credit allowe to the assessee subject to such conditions as may be specified in the said notification :
Provided that the order for non-reversal of credit shall not apply where an assessee has preferred a claim for refund of excise duty paid by him:
Provided further that the Central Government may also specify in the notification referred to above for non-reversal of credit, if any, taken by the buyer of the said product.
23. Further, there was intention to avail credit without being eligible and such credit passed on to the buyer. Appellant deliberately resorted to practice to avail input credit because such inputs were dutiable and out put was not dutiable and in case of exported goods no duty shall be leviable. It contravened the law resorting to recover the duty paid by it on inputs.
24. Law on the issue has been settled in 2003. It was clarified by the Board vide Circular dated 26.9.2007 issued from F.No. 931/1/2005-CX 3 that if a process does not amount to manufacture, duty is not required to be paid and no Cenvat credit of duty paid on inputs is available.
25. Appellants can not be allowed to circumvent the legal position and presumed an activity as manufacture and avail Cenvat credit on inputs forcibly and pay duty on finished goods not required to be paid under the law and then pass the credit to the buyer. In view of above discussion, I am of the view once the activity of cutting or slitting of steel sheet in coil form does not amount to manufacturing activity as held by Honble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India 2004 (178) E.L.T. 1099, followed by circulars issued by Central Board of Excise and Customs there is no question of granting input credit against such manufacture.
26. In view of above, I am of the firm view that credit availed by the appellant on inputs against a activity not amounting to manufacture, is not available under laws.
27. I uphold the order of Adjudicating Authority demanding Cenvat credit and direct imposition of Rs.5 crore (Rupees five crores only) and adjudication order is modified to the such extent.
(MANMOHAN SINGH) MEMBER (TECHNICAL) K. Gupta Difference of Opinion Whether Cenvat credit on inputs can be allowed to be availed and further passed on to the buyers despite activity of slitting and pickling on CR coils undertaken does not amount to manufacture as held by Member (Judicial).
OR Whether once an activity of slitting and pickling of CR Coils does not amount to manufacture as held by Honble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India in 2004 (178) E.L.T. 1099 and Circular No. 940/01/2011-CX dated 14.10.2011 and 911/01/2010 CX dated 14.01.2011 issued by Board, then Cenvat credit on inputs cannot be allowed and it also subsequently cannot be passed over to buyers as held by Member (Technical).
(MANMOHAN SINGH) (ARCHANA WADHWA)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
K. Gupta
Date of hearing/order:22.08.2014
Per: Rakesh Kumar:
28. The appellant are engaged in the manufacture of CR coils/sheets, GP coils/sheets, PPGI coated coils, G.C. Sheets etc. chargeable to central excise duty under Chapter 72 of the Tariff. Their raw materials is H.R.Coils and also the zinc for galvanizing. They availed cenvat credit of excise duty paid on inputs and capital goods used in or in relation to manufacture of final products. The period of dispute in this case is from 01.02.2009 to 31.10.2009 and the dispute is in respect of cenvat credit on H.R. Coils. The appellant in addition to manufacture of CR Coils/Sheets, G.P. Coils/sheets, PPGI Coated Coils, etc. also subjected certain quantity of H.R. Coils to slitting and thereafter subjecting the same to the process of pickling which involves treatment with solution of Hydrocholoric Acid or Sulphuric Acids for cleaning the surface of the sheets and these cut and pickled HR Sheets were being sold by them to their customers. The appellant treating this process of cutting/slitting of H. R. Coils and subjecting the same to the process of pickling as manufacture were paying duty on the same at the applicable rate on the transaction value. As per the letter dated 26.06.2012 issued by the jurisdictional Dy. Commissioner, Central Excise the Appellant during the above mentioned period of dispute have paid duty of Rs.43,43,87,669/- on the clearances of slitted and pickled H.R. sheets and the cenvat credit availed in respect of H.R. coils used for making slitted and pickled H.R. sheets is Rs.37,03,91,917/-. The department was of the view that the process of slitting and pickling of H. R. Coils does not amount to manufacture and, therefore, in respect of the H. R. Coils used for this purpose, the appellant should not have taken cenvat credit. It is on this basis that a show cause notice dated 10.02.2010 was issued to the appellant for demand of above mentioned cenvat credit along with interest and imposition of penalty on them under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944. This show cause notice was adjudicated by the Commissioner, Central Excise (Adjudication), New Delhi vide order-in-original dated 5.9.2011 by which the Commissioner holding that the process of slitting and pickling does not amount to manufacture and hence, the cenvat credit on the H.R. Coils used for this process has been wrongly taken, confirmed the above mentioned cenvat credit demand along with interest by invoking proviso to Section 11A(1) of the Central Excise Act, 1944 and besides this, while imposed penalty of equal amount i.e. Rs.37,03,91,917/- on the appellant company under Rule 15 (2) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944, imposed another penalty of Rs.50 Lakh on Shri Vikash Aggarwal, Director of the appellant company and penalty of Rs.5 Lakh each on Shri Neel Kamal Srivastava and P.S. Chauhan, Authorised Signatories of the appellant company under Rule 26 of the Central Excise Rules, 2002.
28.1. Against this order of the Commissioner, these two appeals have been filed by the appellant company, Shri Vikash Agarwal, its Director and Shri P.S. Chauhan, the Authorised Signatory.
28.2. This appeal was heard for final disposal on 6.8.2013. While the Honble Member (Judicial) by an order dated 26.09.2013 set aside the Commissioners order with consequential relief, Honble Member (Technical) by a separate order dated 25.3.2014 upheld the order passed by the Commissioner except for modification that penalty on the appellant company was reduced to Rs.5 Crores. Honble Member (Technical) in his order relying upon the judgment of Honble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India reported in 2004 (178) ELT 1099 held that the process of slitting and pickling of H.R. Coils does not amount to manufacture and, therefore, on the basis of the Boards Circular No.911/1/2010-CX dated 14.01.2010 dated 14.1.2010 the appellant company could not take cenvat credit in respect of the H.R. Coils and pass on the same to their customers by issuing invoices covering the clearances of the slitted and pickled H.R. Sheets, without issue of a notification by the Central Government under Section 5B of the Central Excise Act, 1944 for regularization of the cenvat credit availed and that since the Appellant neither approached the Central Government for issue of Section 5B notification nor any such notification as was issued, the Appellant could not take the cenvat credit in respect of H.R. Coils used for making pickling sheet.
29. On account of difference of opinion between the Honble Member (Judicial) and Honble Member (Technical), the following point of difference has been referred to the undersigned for decision:-
Whether Cenvat credit on inputs can be allowed to be availed and further passed on to the buyers despite activity of slitting and pickling on CR coils undertaken does not amount to manufacturer, as held by Member (Judicial).
OR Whether once an activity of slitting and pickling of CR Coils does not amount to manufacturer, as held by Honble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India in 2004 (178) ELT 1099 and Circular No.940/01/2011-CE dated 14.10.2011 and 911/01/2010-CE dated 14.01.2011 issued by Board, then Cenvat credit on inputs cannot be allowed and it also subsequently cannot be passed over to buyers as held by Member (Technical).
30. Heard both the sides in respect of the point of difference.
31. Shri Amit Jain, Advocate, ld. Counsel for the appellant, pleaded that Section 5B of the Central Excise Act, 1944 comes in picture when an assessee has paid excise duty on the final products and has been allowed cenvat credit of duty or tax or cess paid on inputs, capital goods or input service used in making of the said product, but subsequently the process of making the said product is held by the Court as not amounting to manufacture and therefore not chargeable to duty and in such circumstances, Central Government may by notification order for non-reversal of such credit allowed to the assessee subject to such conditions as may be specified in the said notification, that though Honble Member (Technical) mentions that in view of the judgement of the Honble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India reported in 2004 ((178) ELT 1099 (Delhi), subjecting the HR coils to the process of slitting and pickling does not amount to manufacture, on going through the judgement, it will be seen that what has been held in this judgement is that the process of cutting and slitting of steel sheets in coils does not amount to manufacture, as no new commodity or article having distinct name, character and use emerges, and this judgement is silent about the process of pickling, that nowhere in this judgement, Honble High Court has held that the process of pickling of the H.R. Sheets/coils does not amount to manufacture, that as will be seen from the Tariff Heading No.7208 of the Central Excise Tariff, in this Heading, distinction has been made between the Hot Rolled Coils pickled and H.R. Coils, other than pickled, which shows that in course of trade, pickled H.R. sheets /coils are treated as a different and distinct commodity, that when there is no judgement of any High Court or Supreme Court holding that the process of pickling does not amount to manufacture, the provisions of Section 5 B would not be applicable, that this would be a case of clearance of Cenvat credit availed inputs/ H.R. Coils as such if the process undertaken is not treated as manufacture and, therefore, in terms of Rule 3(5) of the Cenvat Credit Rules, 2004, the appellant would be required to reverse the cenvat credit originally taken, that the payment of duty on removal of pickled H.R. sheets amounts to reversal of the cenvat credit in full, as the amount paid towards duty on the pickled H. R. Coils is about Rs.42 Crores while the cenvat credit demand according to the department is about Rs.37.03 crores, that when the amount paid on duty on clearance of pickled H. R.sheets is more than the cenvat credit availed on H. R. Coils, there is no need to recover the cenvat credit taken on H.R. Coils again, and that in terms of Rule 3(5) of the Cenvat Credit Rules, 2004, the amount required to be paid on removal of the cenvat credit availed inputs or capital goods as such is required to be paid under invoices issued under Rule 9 of the Central Excise Rules, 2002, while in terms of the Rule 9 (1) of the Cenvat Credit Rules, 2004, the invoices issued for removal of cenvated inputs or capital goods as such are valid documents for availment of cenvat credit, that in view of this, there is no prohibition on passing of credit to buyers, as in terms of the Rule 3(5) of the Cenvat Credit Rules, the amount paid on removal of cenvated inputs as such under this rule is required to be paid under an invoice issued under Rule 9 of the Cenvat Credit Rules, which is a valid document for availment of cenvat credit by the customers. He also cited the judgement of the Tribunal in the case of Ajinkya Enterprises Vs. CCE reported in 2013 (288) ELT 247 (T-M) , wherein it was held that when the cenvat credit availed C.R. coils were cleared after subjecting them to a process, which did not amount to manufacture and the duty paid by the assessee is more than the cenvat credit availed and has been accepted by the department, there is no requirement for the assessee to again reverse the credit availed by him and that this judgement of the Tribunal has been upheld by the Bombay High Court vide judgement reported in 2013 (294) ELT 203 (Bom.). He also submitted that the same view has been taken by the Tribunal in the case of Hino Motors Sales India Pvt. Ltd. reported in 2014 (299) ELT 0049 and also in the case of Heat Shrink Technologies Ltd. reported in 2007 (220) ELT 437. He, therefore, pleaded that it is the order recorded by the Honble Member (Judicial), which is correct.
32. Shri Yashpal Sharma, ld. Departmental Representative, pleaded that the process of subjecting the H.R. Coils to slitting and pickling do not amount to manufacture as no new product with distinct name, character and usages has emerged, that in spite of this, the appellant paid duty on the H. R. Sheets subjected to this process and availed cenvat credit in respect of the H.R. Coils, that since the process of slitting and pickling of H.R. Coils being undertaken by the appellant did not amount to manufacture and since the appellant in respect of this process had paid duty on the slitted and pickled H.R. / Sheets and had availed cenvat credit in respect of the H.R. Coils, in terms of the provisions of Section 5 B, the appellant should have approached the Central Government for issue of the necessary notification for non-reversal of the cenvat credit, that since they did not approach the Central Government and no such notification has been issued, the appellant could not avail the cenvat credit and as such, the cenvat credit availed in respect of the H.R. Coils is irregular, that since the cenvat credit has been irregularly taken, the same could not be passed on by the appellant to their customers, and that in view of this, it is the order recorded by the Honble Member (Technical, which is the correct order.
33. I have considered the submission from both the sides and perused the records.
34. The appellants main raw material is duty paid H.R. Coils, which are used by them for manufacture of C. R. Coils/strips, G.P. coil/sheet, PPGI Coated Coils, G.C. Sheets etc,. Some quantity of H.R.Coils in respect of cenvat credit has been taken, are subjected to the process of slitting and pickling and such slitted and pickled sheets are sold. There is no dispute that the appellant had cleared such slitted and pickled sheets on payment of duty at the applicable rate on the transaction value, and as such duty paid on the slitted/pickled H.R. Sheets is Rs.43,43,87,669/- as against the cenvat credit of Rs.37,03,91,917/- taken in respect of the H.R. Coils used. The departments objection is that since in view of the judgement of the Honble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India (supra), the process undertaken by them did not amount to manufacture, the appellant should not have availed the credit in respect of the H.R. Coils and should not have paid any duty on the cut/slitted and pickled H.R. sheets and since the duty on this process has been paid, they should have applied to the Central Government for issue of the necessary notification under Section 5 B and since they do not do so and as such, there is no notification issued under Section 5 B in respect of the process being undertaken by the appellant, the credit wrongly taken by the appellant in respect of H.R. Coils would be recoverable from them along with interest and they would be liable for penalty under the provisions of Rule 15 of the Cenvat Credit Rules.
35. Section 5 B of the Central Excise Act, 1994, provides that where an assessee has paid duty of excise on a final product, and has been allowed cenvat credit of the duty or tax or cess paid on inputs/capital goods and input service used in making of the said products, but subsequently the process of making the said product is held by the Court as not chargeable to excise duty, the Central Government may, by notification order for non-reversal of such credit allowed to the assessee subject to such condition as may be specified in the said notification. Thus, the Section 5 B becomes applicable when
(a) a manufacturer is paying duty on certain products being made by him and is availing cenvat credit in respect of inputs, capital goods on input services used; and
(b) the process being undertaken by the person for making that products has been held by some High Court or Apex Court as not amounting to manufacturing, as a result of which, there is no requirement for payment of duty on the final product and there is no entitlement for cenvat credit in respect of inputs, capital goods or input services.
36. Though according to the department, in view of Honble Delhi High Courts judgement in case of Faridabad Iron & Steel Traders Association (supra), the process of slitting and pickling of H.R. coils by the appellant does not amount to manufacture, on going through this judgement, it is seen that what has been held in this judgement is that the process of cutting or slitting of steel coils to the required sizes does not amount to manufacture, as no new commodity and distinct article having distinct name, character and use has emerged. In this judgement, the excisability of pickling process has not been examined, as this was not the dispute in this case. The process of pickling involves treatment of the H.R. sheets/ coils by solution of acids and chemicals to remove surface defects and obtain a sheet with smooth surface. In Heading No.7208 of the Central Excise Tariff, there is separate sub-heading for H.R. Coils subjected to the process of pickling and probably because of this, the appellant were under impression that this process amounts to manufacture, and paid duty in respect of this process. Since there is no judgement of any High Court or Apex Court on the specific issue as to whether the H.R. Coils subjected to the process of slitting as well as pickling would amount to manufacture, in my view, the provisions of Section 5 B are not attracted and as such, no notification was required to be issued by Government under Section 5 B.
37. Moreover, when the Departments case is that the process undertaken by the appellant does not amount to manufacture, it amounts to saying that the appellant have cleared the cenvat credit availed inputs as such and this is something which is not prohibited, if at the time of removal of cenvat credit availed inputs, in terms of the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004, an amount equal to the cenvat credit availed is paid under an invoice issued under Rule 9 of the Central Excise Rules, 2002. There is no dispute that the amount paid by the appellant is more than the cenvat credit availed. In my view, therefore the assessee should not be penalized for paying more amount than their actual duty liability. Since Rule 3(5) itself requires that removal of cenvated inputs as such on payment of an amount equal to the cenvat credit availed has to be under an invoice issued under Rule 9 of the Central Excise Rules, 2002 and since in terms of the Rule 9(1) of the Cenvat Credit Rules, 2004, an invoice issued by a manufacturer under Rule 9 even for removal of cenvated inputs/capital goods as such is a valid document for availing cenvat credit, the Appellants customer could avail cenvat credit on the basis of the invoices for pickled sheets issued by the appellant and as such, there is no illegality in the appellants passing on the cenvat credit. Since the amount paid on the clearance of pickled H.R. sheets is more than the cenvat credit availed, the cenvat credit availed stands more than reversed and there is no need to recover the same again. It is also seen that this issue stands decided in favour of the appellant by the Tribunal in the case of Ajinkya Enterprises (supra) and this judgement of the Tribunal has been upheld by the Bombay High Court vide judgement reported in 2013 (294) ELT 203 (Bombay).
38. In view of the above discussion, I agree with the decision of the Honble Member (Judicial). The point of difference referred stands answered as above.
( Rakesh Kumar ) Member (Technical) Ckp.
Final Order No. 53801-53803 /2014-Ex(DB) In view of the majority order, the impugned order is set aside and the appeal is allowed with consequential relief to the appellants.
(Pronounced in the Court on 29.09.2014)
( Archana Wadhwa ) Member(Judicial)
( Manmohan Singh )
Member(Technical)
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