Gujarat High Court
Commissioner Of Central Excise vs Vardhaman Stamping Pvt. Ltd on 29 November, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/563/2014 ORDER DATED: 29/11/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 563 of 2014
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COMMISSIONER OF CENTRAL EXCISE
Versus
VARDHAMAN STAMPING PVT. LTD
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Appearance:
MR PY DIVYESHVAR(2482) for the Appellant(s) No. 1
MR PARESH M DAVE(260) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 29/11/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. P.Y. Divyeshvar for the appellant and learned advocate Mr. Paresh M. Dave for the respondent.
2. This appeal is filed under section 35G of the Central Excise Act, 1944 (For short "the Act") by the appellant Revenue challenging the order dated 04.12.2013 passed by the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (For short "the Tribunal" ) in Central Excise Appeal Page 1 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined No.E/569/2012.
3. This Court by order dated 02.07.2014 has admitted the appeal to consider the following substantial questions of law:
"1. Whether the Hon'ble Customs, Excise and Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Ahmedabad, while passing Order No.A/11707/WZB/AHD/2013; dated 4th December, 2013, is right in allowing the Cenvat Credit of duty of inputs which were not used to manufacture a new excisable goods?
2. Whether the Hon'ble Customs, Excise and Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Ahmedabad, was right in law in disallowing the demand of the Department for Cenvat Credit duty wrongly availed of by the assessee Under Rule 14 of the Cenvat Credit Rules, 2004, on the ground that it is against the tenets of Equity and Justice?"
4. The respondent assessee was engaged in the manufacture of exciseable goods falling under Chapter Nos. 72 and 85 to the First Schedule to the Central Excise Tariff Act, 1985 (For short "the Act of 1985"). The respondent assessee was also availing Cenvat Credit facility as provided under Cenvat Credit Rules, 2004 (For short "the Rules").
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5. The respondent assessee was importing CRGO coils having width of more than 600 mm falling under Chapter CETSH No.7225 1100 of the Act of 1985 and was availing Cenvat Credit of the duty paid on the same.
6. CRGO coils imported by the assessee was subjected to reduction of width by carrying out the process of slitting and cutting and clearing the same on payment of Central Excise duty after classifying the resultant product of CRGO coils having width of less than 600mm under Chapter CETSH No.7226 1100 of the Act of 1985.
7. A show cause notice dated 15.03.2010 was issued by respondent no.1 pursuant to the investigation carried out by the Revenue. In the show cause notice, referring to the statement of Shri Dipakbhai C. Shah, Director of the assessee Company recorded under section 14 of the Act on 20.03.2009, it was found that the assessee was not eligible for availing Cenvat Credit on imported Page 3 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined CRGO coils having width of less than 600mm as no manufacturing process was carried out in such CRGO coils in the factory except reduction of width of coil which does not amount to manufacture. Reliance was placed on Rule 2(k) of the Rules where term "input" has been defined as well as Rule 3 of the Rules where the eligibility to take the credit of the duty paid on any input or capital goods received in the factory of manufacturer of final product or premises of the provider of output service is provided. As per Rule 2(h) of the Rules, "final product" is defined as excisable goods manufactured or produced from input, or using input service. Accordingly, the petitioner was called upon to show cause as to why wrongly availed and utilised Cenvat Credit amounting to Rs.4,84,27,234/- should not be recovered under Rule 14 of the Rules read with section 11AB of the Act along with penalty and interest.
8. The adjudicating authority passed the order-in-original dated 27.03.2012 holding that the process undertaken by the assessee on CRGO coils of width of more than 600mm to obtain desired size of width less than 600mm by mere cutting/slitting does not amount to Page 4 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined manufacture and the assessee was not required to pay duty on such goods. However, as the assessee continued to pay duty on clearance of the resultant product, the duty paid for the period from April-2005 to June-2010 by the assessee was not treated as duty as defined under Rule 2(e) of the Central Excise Rules, 2002 and it was also not considered as payment of duty which was wrongly paid. The adjudicating authority also levied the interest and penalty on the Cenvat Credit wrongly availed by the assessee.
9. Being aggrieved, the assessee preferred an appeal before the Tribunal. The Tribunal by the impugned judgment and order referring to the decision of Hon'ble Bombay High Court in case of Commissioner of Central Excise, Pune-III v. Ajinkya Enterprises reported in 2013 (294) E.L.T. 203 (Bom.) as well as decision of Delhi Tribunal in case of Markwell Paper Plast Pvt. Ltd. v. Commr. Of Cus. & C. Ex., Noida reported in 2012 (285) E.L.T. 76 (Tri-Del), held in favour of the assessee by observing as under:
"4. Heard both sides and perused the records. It is observed that admissibility of Cenvat credit on slitting Page 5 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined of CRGO coils cleared is no more res integra and has been decided by the Mumbai Bench of Tribunal in the case of Ajinkya Enterprises vs. Commissioner of Central Excise., Pune-III (supra) which has been upheld by the Hon'ble High Court of Mumbal. Secondly, it is also observed that the duty paid by the appellant has been accepted by the department and nothing has been brought to out notice that the appellant was asked by the Revenue at any stage for not paying Central Excise duty when process did not amount to manufacture. In this regard, appellant has correctly placed reliance on the judgment of the Tribunal in the case of Markwell Paper Plast Pvt. Ltd. vs. Commissioner of Cus. & C.Ex., Noida [2012 (285) E.L.T. 76 (Tri. Del.)). In this order, the following observations were made by the Bench in paragraph 23 of the judgement which are reproduced below:
"23. Even otherwise if for the sake of argument it is assumed that the final products cleared by the manufacturing appellants emerged from a process not amounting to manufacture then also we find It difficult to sustain the impugned order for following reason:-
Undisputedly, the appellants used duty paid inputs for the production of their final product which was cleared to the customers on payment of excise duty. Admittedly, the department accepted the excise duty on the final product without any protest nor the appellants were. informed that their final products was not subject to excise duty as it emerged from the process not amounting to manufacture as defined under Section 2(f) of the Central Excise Act. Learned Counsel for the respondent department has tried to justify the impugned order disallowing the Convat credit avalled by the appellant on the Page 6 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined inputs on the plea that the final product has not emerged from the process which could be termed as manufactured. Such an argument, in our view cannot be sustained as it is against the tenets of equity and justice. The department having accepted the excise duty on the final product cannot be permitted to deny Cenvat credit on the inputs sed for the manufacture of the final product on such a technical plea.If such an argument is allowed to sustain it would negate the entire object of the Cenvat credit scheme which has been put in place with a view to protect the assessee from double taxation. Thus, on this count also, the impugned orders are not sustainable."
10. Learned advocate Mr. P.Y. Divyeshvar for the appellant Revenue referring to the order-in-original as well as decisions relied upon by the adjudicating authority submitted that by merely cutting/slitting of 600mm of CRGO coils cannot be construed as amounting to "manufacture" as defined under section 2(f) of the Act in light of the following decisions:
1) Union of India v. Delhi Cloth Mills Co. Ltd reported in AIR 1963 SC 791.
2) State of Maharashtra v. Mahalaxmi Stores reported in Page 7 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined 2003 (152) ELT 30(SC).
3) Hyderabad Industries Ltd. v. Union of India reported in 1995 (78) ELT 641 (SC).
11. It was further submitted that the assessee was not eligible for availing Cenvat Credit on imported CRGO coils having width of 600mm as no manufacturing process was carried out on the said CRGO coils in the factory except reduction of width of coils which does not amount to manufacture.
12. Reliance was also placed on Rule 2(k) of the Rules read with Rule 2(h) and Rule 3 of the Rules. It was submitted that merely because the assessee has paid the excise duty under the provisions of the Act, Cenvat Credit cannot be claimed under the provisions of the Rules and therefore, the assessee is entitled to reverse the credit as per Rule 14 of the Rules.
13. On the other hand, learned advocate Mr. Paresh M. Dave Page 8 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined appearing for the respondent assessee submitted that the Tribunal after following the decision of Bombay High Court in case of Ajinkya Enterprises (supra) as well as the decision of Bombay Tribunal in the said case of the said assessee has held that assessee is entitled to Cenvat credit.
14. Reliance was placed on reply dated 10.04.2010 submitted by the assessee before the adjudicating authority wherein it was contended that the assessee has availed Cenvat credit of duties paid on CRGO coils and has paid much higher amount as excise duties on the final products, and therefore there is no loss or prejudice to the Revenue. It was submitted that because excise duty paid by the assessee was accepted by the respondent and therefore, as per the decision in case of Markwell Paper Plast Pvt. Ltd. (supra) relied upon by the Tribunal, the assessee is entitled to Cenvat credit.
15. It was further submitted that imported CRGO coils falls under Tariff Heading 7225 1100 whereas the final product after slitting the CRGO coils less than 600mm falls under the Tariff Heading 7226 Page 9 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined 1100 and therefore, the Revenue was not justified in contending that there was no manufacture undertaken by the assessee.
16. It was further submitted that Bombay High Court in case of Ajinkya Enterprises (supra) has also referred to and relied upon decision of this Court in case of Commissioner v. Creative Enterprise reported in 2009 (235) ELT 785 (Guj)
17. Considering the rival submissions made by both the sides and on perusal of the impugned order-in-original as well as order passed by the Tribunal, it appears that the process undertaken by the assessee was cutting/slitting of imported CRGO coils of width more than 600mm to the width of less than 600mm. It also emerges from the record that the petitioner has paid more excise duty while clearing the final products under Chapter Heading No. 7226 1100 than the amount of Cenvat Credit availed on the duty paid on import of CRGO coils under Chapter Heading N. 7225 1100.
18. This Court in case of Creative Enterprise (supra) has held as Page 10 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined under:
"2. Heard Mr. H.C. Buch, learned Additional Standing Counsel for the appellant revenue. The learned counsel has read extensively from the show cause notice and the order made by the adjudicating authority to contend that the respondent was not a manufacturer but was merely an agent of Dr. Beck & Company (I) Limited. It was submitted that in the circumstances, in absence of any independent manufacture by the respondent, there was no question of the respondent being entitled to modvat credit under Rule 571(l)(iii) of the Central Excise Rules, 1944.
That the Tribunal had erroneously placed reliance on its own decision in case of the respondent assessee despite the fact that the said order of Tribunal dated 28.10.2003 had been challenged by way of Tax Appeal Stamp No.815 of 2004. The learned counsel has also placed reliance on the Apex Court order in case of Thiagaraja Engineering Enterprises v. Assistant Collector of Central Excise, (1997) 10 SCC 241.
3. Against the order made by the adjudicating authority, the respondent assessee carried the matter in appeal and the first appellate authority allowed the appeal after recording following facts.
"4. I have examined the records of the case and the submissions made in memorandum of appeal as well as at the time of personal hearing. The issue for determination is whether the activity of re- packing from bulk packs to lower packs amounts to manufacture within the meaning of Page 11 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined Section 2(f) of the Central Excise Act, 1944 or not. I find that the appellant has received "Elmo Luft 1A' falling under CSH No.3208.40 in bulk packs from Dr. Bex & Co. (I) Ltd. And with the help of special purpose machines prepared small marketable packages and cleared the same on payment of duty under cover of invoice. The department had granted the C.Ex., registration to the appellant. In the present case, I find that the appellant had received the goods in bulk, carried out testing/ inspection, packed in smaller containers with automatic machinery, followed the rules and procedure strictly and cleared the goods on payment of duty. The expression 'manufacturer' has been defined in Section 2(f) of the C.Ex., Act, 1994, according to which it includes any process
(i) Incidental or ancillary to the completion of a manufactured product, and
(ii)which is specified in relation to any goods in the Section of Chapter Notes of the schedule to the Central Excise Act, 1985 as amounting to manufacture.
The aforesaid definition endows a wider content to the expression 'manufacture' as several process which would not ordinarily be understood as amounting to manufacture are specifically included therein, held by the Apex Court in the cases of Prestige Engg. (I) Ltd Vs. Collector - 1994(73) ELT 497 (SC) and Collr. Vs. S.D. Fine Chemicals P. Ltd - 1995(77) Elt 49 (SC). In the appellant's case, though the process involved is of repacking, but repacking with conscious and specific end use in view. In other words, repacking makes the Page 12 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined products marketable. In the cases of J.K. Synthetics Ltd. Vs. Collector - 1998 (967) ELT 310(T) and Ponds India Ltd. Vs. Collector 1993 (63) ELT 3 (Mad.), it is held that "Manufacturing process continues till the article is put in suitable packaging to smaller packages. I find that the appellant had availed modvat credit of Rs.1,70,53,294.00 on the goods received in bulk packs whereas the appellant paid excise duty amounting to Rs.1,95,03,939.00 on the final product i.e. the repacked goods in small packs. Accordingly, the process has to be treated as amounting to manufacture.
5. With regard to modvat credit on duty paid inputs, I find that the appellant has received duty paid raw materials, the said raw material has been received in the factory and were utilized in the manufacture of final products. In view of this and considering the position as indicated above, I set aside the impugned order and allow the modvat credit of Rs.1,70,53,294.00. I also set aside the penalty of Rs.5,00,000/ and demand of interest under Section 11 AB of the Central Excise Act, 1944."
4. The Tribunal in the impugned order after recording facts in paragraph No.2 of its order has noted that in assessee's own case in respect of same issue, for an earlier period, it was held by Tribunal that the assessee cannot be denied modvat credit by observing as under:
"4. The learned Advocate appearing on behalf of the respondents submits that in respect of the same issue and in the same assessee's case, the Tribunal has held that the assessee cannot be denied the Modvat credit. Vide final Page 13 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined order No.CB/470/03WZB dated 28.10.2003, the Tribunal held as under:
'We have perused the records and have considered the submissions made by both sides. The present order is clearly unjust and cannot be allowed to stand. The appellants are right in their contention that the finding regarding manufacture applies equally to levy of duty as well as eligibility to Modvat credit. It there was no manufacture, there could be no payment of duty also. There is no dispute that the appellants had paid a higher amount of duty on the goods than the credit taken. If the credit taken was not eligible, what was required was only to adjust the duty paid against that credit."
5. It is necessary to take note of the fact, to complete narration of facts, that the earlier order of Tribunal was challenged by way of Tax Appeal Stamp No.815 of 2004 which came to be disposed of on 20.7.2004 for non removal of office objections. Till date, no steps have been taken to have the said appeal restored to file.
6. When one goes through the order of the first appellate authority, it is apparent that the respondent has been held to be a manufacturer as defined in section 2(f) of the Central Excise Act, 1944. The appellate authority has taken into consideration the activities carried on by the respondent assessee. The Tribunal is justified in holding that if the activity of the respondent assessee does not amount to manufacture there 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." Page 14 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024
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19. The aforesaid decision of this Court was followed by the Hon'ble Bombay High Court in case of Ajinkya Enterprise (supra) observing as under:
"7. According to the Revenue once a circular was issued by the CBEC on March 2, 2005 thereby withdrawing the earlier circular dated September 7, 2001, it was clear that the activity of decoiling the HR/CR sheets did not constitute manufacture and, therefore, the assessee could not have taken credit of duty paid on HR/CR coils. It is further argued that if the process of decoiling the HR/CR coils did not constitute manufacture, then, obviously no duty was payable on clearance of the decoiled HR/CR coils and consequently the assessee could not have taken credit of duty paid on HR/CR coils. Merely because the assessee had paid duty though not payable, it cannot be said that the credit of input duty has been correctly taken. It is contended that the assessee had applied to the Board seeking regularisation of the credit which was wrongly taken, but the Board has rejected the request made by the assessee. In these circumstances, it is submitted that the CESTAT ought not to have interfered with the order passed by the authorities below.
8. We see no merit in the above contentions. As rightly contended by the representative of the assessee appearing in person, till March 1, 2005 the Revenue has accepted that the activity carried on by the assessee constituted manufacturing activity in view of Board circular dated September 7, 2001 and accordingly held that the assessee is entitled to take Page 15 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined credit of duty paid on HR/CR coils. It is only because the Board on March 2, 2005 has withdrawn the circular dated September 7, 2001 the Revenue is claiming that the activity carried on by the assessee does not amount to manufacturing activity. The question is, whether on the facts of the present case, the Revenue, based on the circular dated March 2, 2005, is justified in calling upon the assessee to reverse the credit or pay the amount to the extent of the credit liable to be reversed, with interest and penalty ?
9. It is relevant to note that the Board in its circular dated September 7, 2001 had only held that the activity of cutting/slitting of HR/CR coils into sheets or strips constitutes manufacture. Admittedly, the assessee had carried on additional activities such as pickling and oiling on the decoiled HR/CR coils, which is a complex technical process involving huge investment in plant and machinery. Since these additional activities were not considered by the Board in its circular dated September 7, 2001, the withdrawal of the said circular cannot be a ground to hold that the activity carried on by the assessee did not constitute manufacturing activity. It is only on June 24, 2010, the Board has issued a circular to the effect that the process of pickling does not amount to manufacture. Therefore, during the relevant period, that is, during the period from March 2, 2005 to December 31, 2005, it could not be said that the issue was settled and that the assessee paid duty on decoiled HR/CR coils knowing fully well that the same were not manufactured goods. If duty on decoiled HR/CR coils was paid bona fide, then availing of credit of duty paid on HR/CR coils cannot be faulted.
10. Apart from the above, in the present case, the Page 16 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined assessment on decoiled HR/CR coils cleared from the factory of the assessee on payment of duty has neither been reversed nor it is held that the assessee is entitled to refund of duty paid at the time of clearing the decoiled HR/CR coils. In these circumstances, the CESTAT following its decision in the case of Ashok Enterprises (2008) 221 ELT 586 (Trib.-Chennai), Super Forgings (2007) 217 ELT 559 (Trib.-Chennai), S.A.I.L. (2007) 220 ELT 520 (Trib.- Kolkata), M. P. Telelinks Ltd. (2004) 178 ELT 167 (Trib.-Delhi) and a decision of the Gujarat High Court in the case of CCE and Customs v. Creative Enterprises reported in (2009) 235 ELT 785 (Guj) has held that once the duty on final products has been accepted by the Department, Cenvat credit availed of need not be reversed even if the activity does not amount to manufacture. Admittedly, a similar view taken by the Gujarat High Court in the case of Creative Enterprises (2009) 235 ELT 785 (Guj) has been upheld by the apex court (see CCE and Customs v. Creative Enterprises [2009] 243 ELT A120) by dismissing the SLP filed by the Revenue."
20. In view of the above settled legal position, we are of the view that the assessee is entitled to Cenvat Credit in view of the fact that the Revenue has accepted the excise duty paid by the assessee on the clearance of final products, irrespective of the fact, whether it amounts to manufacture or not.
21. We therefore answer the question nos. 1 and 2 in favour of the Page 17 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024 NEUTRAL CITATION C/TAXAP/563/2014 ORDER DATED: 29/11/2024 undefined assessee and against the Revenue. This Appeal accordingly stands dismissed.
(BHARGAV D. KARIA, J) (D.N.RAY,J) RAGHUNATH R NAIR Page 18 of 18 Uploaded by RAGHUNATH R NAIR(HC00196) on Tue Dec 10 2024 Downloaded on : Fri Dec 20 21:54:07 IST 2024