Credit reversal on inputs used in process not amounting to manufacture.

PJ/Case Law/2014-15/2345

Case:- COMMISSIONER OF CENTRAL EXCISE, PUNE-II Vs ASSOCIATED CAPSULES LTD.

Citation:- 2014 (300) E.L.T. 536 (Tri. - Mumbai)

Brief facts:- The respondent, M/s. Associated Capsules Ltd. were engaged In the manufacture of HG Capsules and they have packing films division and capsules division in their factory, where they undertake cutting and slitting of jumbo rolls of aluminium foil rolls into smaller rolls. The respondent, under the bona fide belief that cutting and slitting of jumbo rolls amounts to manufacture, discharged excise duty liability thereon and also availed Cenvat credit of the excise duty of CVD paid on jumbo rolls. Therefore, a show cause notice dated 22-11-2006 was issued to the appellant requiring reversal of Cenvat credit amounting to Rs. 1,54,33,170/- as the ground that the activity of cutting and slitting did not amount to manufacture. The said notice was adjudicated vide the impugned order wherein the ld. Commissioner dropped the demand holding that the activity of cutting and slitting amounts to manufacture and therefore, the appellant was rightly eligible for the Cenvat credit taken. Aggrieved of the same, Revenue was in appeal before Tribunal.

Appellant’s contentions:- It was the contention of the Revenue that in the case of S.R. Tissue Pvt. Ltd. - 2005 (186) E.L.T. 385 (S.C.), the Hon’ble Apex Court had held that cutting and slitting of jumbo of rolls aluminium foils into smaller size would not amount to manufacture. In view of the Apex Court’s decision, the findings of the adjudicating authority that the activity would amount to manufacture was incorrect and therefore, the impugned order be set aside.
The ld. Additional Commissioner (AR) appearing for the Revenue fairly submitted that subsequently the Government of India issued a Notification No. 24/2012-C.E., dated 19-4-2012 wherein it was provided that reversal of Cenvat credit taken was not required subject to the following conditions, namely;
(a)        the said non-reversal shall be allowed only for the Cenvat credit taken up to the 15th of March, 2012.
(b)        the said non-reversal shall be allowed only when excise duty had been paid on removal of the said final product.
(c)        the said assessee shall not prefer a claim of refund of the excise duty paid by him on the said final product.
Therefore, in terms of the impugned notification, the appellant was eligible for the benefit of said notification. However, with regard to the condition (c) it was the submission of the ld. AR that matter needs to be verified by the adjudicating authority.

Respondent’s contentions:- The ld. Counsel for the respondent submitted that they had not preferred any refund claim of the excise duty paid by them on the final product. Therefore, they were eligible for the benefit of the said exemption.

Reasons of judgment:- In view of Notification No. 24/2012-C.E., dated 19-4-2012, the respondent herein was not required to reverse the Cenvat credit taken of the excise duty or CVD paid on the materials procured by them for undertaking the job-work on which they have discharged excise duty liability. The demand was also for the period up to 15-3-2012. Thus, the appellant had satisfied the conditions “(a) & (b)” specified in the said notification. As regards the condition (c), the ld. Counsel for the respondent submitted that the appellant had not made any refund claim, Subject to verification of this claim by the department, the benefit of Notification No. 24/2012-C.E. was available to the appellant. Consequently, the question of demanding duty amounting to Rs. 1,54,33,170/- would not arise at all. Thus the appeal filed by the Revenue was devoid of merits and was liable to be dismissed, subject to verification of condition “(c)” of the Impugned notification by the jurisdictional Assistant Commissioner of Central Excise.

Decision:- Appeal was dismissed.

Comment:- The analogy drawn from the case is that the assessee was under the bona fide belief that cutting and slitting of jumbo rolls amounts to manufacture and so paid Excise duty at the time of clearance; hence the assessee was eligible to avail Cenvat credit of the inputs. Moreover, Notification No. 24/ 2012-C.E. dated 19-4-2012 was also issued wherein there was no need to reverse input credit on fulfillment of certain conditions.

Prepared by: Ranu Dhoot

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PJ/Case Law/2014-15/2345

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