Whether credit deniable on the ground that process of cutting does not amounts to manufacture?

PJ/CASE LAW/2015-16/2679

Case:-FOAM TECHNIQUES MFG. (I) PVT. LTD. Versus COMMISSIONER OF C. EXCISE, THANE-I

Citation:-2015 (317) E.L.T. 266 (Tri. - Mumbai)

Brief facts:-This appeal is directed against Order-in-Appeal No. YDB(33)Th-I/2012, dated 16-3-2012. The relevant facts that arise for consideration are that the appellant herein is a Central Excise registered unit manufacturing inter alia P.U. foam sheets and also is availing the benefit of Cenvat credit. The appellant had procured blocks of P.U. foam and cut them into different sizes and shapes and sold the same on payment of duty. The lower authorities were of the view that the appellant’s activity does not amount to manufacture and availment of Cenvat credit on P.U. foam blocks was irregular. Show cause notice was issued for confirmation of demand with interest and also imposition of penalty. The appellant contested the issue on merits as well as on limitation. The adjudicating authority confirmed the demand with interest and also imposed equivalent penalty. Aggrieved by such an order, an appeal was preferred. The first appellate authority, after following the due process of law, did not agree with the contentions of the appellant and rejected the appeal.

Appellant’s contention:- The learned Counsel would take us through the show cause notice as also both the orders. He would bring to our notice the products manufactured by the appellant though loosely termed by them as P.U. foam sheets, they were in fact various articles of P.U. foam. He would submit that the appellant had paid Central Excise duty on these articles, which is not disputed. He would submit that, having discharged the duty liability, availment of Cenvat credit on the P.U. foam blocks was correct. He would rely upon the decision of the Hon’ble High Court of Gujarat in the case of CCE & C, Surat-III v. Creative Enterprises - 2009 (235)E.L.T.785 (Guj.),which has been upheld by the Hon’ble Supreme Court as reported at 2009 (243) E.L.T. A120 (S.C.). He would also rely upon the decision of the Hon’ble High Court of Bombay in the case of CCE, Pune-III v. Ajinkya Enterprises -2013 (294)E.L.T.203 (Bom.). His reliance on these two decisions is for the proposition that once the department has collected the duty from an assessee considering the product as manufactured, Cenvat credit cannot be denied on the inputs consumed for manufacture of the said final products.

Respondent’s contention:- The learned Departmental representative, on the other hand, would submit that there is no change in the description of the final product manufactured by the appellant. It is his submission that the appellant is only cutting the P.U. foam blocks and clearing the sheets, which is not the manufacturing activity. It is his submission that the Hon’ble Supreme Court in the case of Aman Marble Industries Pvt. Ltd. v. CCE, Jaipur - 2003 (157)E.L.T.393 (S.C.), has categorically held that when cutting of marble blocks into slabs, no new product is coming into existence, hence not a manufacturing activity. He would also rely upon the decision of the Hon’ble Supreme Court in the case of CCE, New Delhi-I v. S.R. Tissues Pvt. Ltd. - 2005 (186)E.L.T.385 (S.C.), for the same proposition.

Reasoning of judgement:- The only issue that arises for their consideration is whether the appellant is eligible to avail Cenvat credit of Central Excise duty paid on P.U. foam blocks which are inputs for their final product which is described by them as P.U. foam sheet.
From the perusal of the records, they find that the appellant is procuring P.U. foam blocks which are covered under Chapter Heading No. 3920 or 3921, on which Central Excise duty has been discharged by the manufacturer. They also note that the products as got manufactured by the appellant were classified by them under Chapter Heading No. 3926. After classifying the said product under Chapter Heading 3926, the appellant had discharged Central Excise duty which has been accepted by the Revenue. In the entire proceedings before them, they find that the classification described by the appellant as to the products which are falling under Chapter Heading 3926, remains the same and is not disturbed by the adjudicating authority or the first appellate authority. This itself is an indicator that the original input, P.U. foam block, has undergone change and is now other than the inputs which were procured by the appellant.
Yet another angle to the entire issue is when the appellant is discharging Central Excise duty on the products which they consider as manufactured products and the Revenue authorities also having accepted the Central Excise duty, in their considered view, the appellant eligible, rightfully to avail Cenvat credit of the Central Excise duty paid on the inputs. This is the settled law.
They find that the learned Counsel was correct in placing reliance on the decision of the Hon’ble High Court of Bombay in the case of Ajinkya Enterprises (supra). It is also noticed that the judgment of the Hon’ble High Court of Gujarat in the case of Creative Enterprises (supra) is directly on the issue and it was held in favour of the assessee inasmuch as the ratio stated is when an assessee considers the activity as amounting to manufacture, then the question of availing Cenvat credit cannot be denied by holding that there is no manufacture. This ratio has been upheld by the Apex Court as already indicated in this order.
As to the various case laws cited by the learned Departmental representative, they find that the judgments relied upon by the learned Counsel for the appellant in the case of Creative Enterprises and Ajinkya Enterprises (supra) are directly on the point and will have more persuasive value.
In view of the foregoing and the judicial pronouncements as also in the facts and circumstances of this case, they find that the impugned order is unsustainable and liable to be set aside and they do so.
The impugned order is set aside and the appeal is allowed.

Decision:-Appeal allowed

Comment:- The analogy of the case is that as far as the excise duty has been paid on the process undertaken by the assessee and the same is not disputed by the revenue, then the cenvat credit on the inputs used in such processing cannot be denied on the contention that the process undertaken did not amount to manufacture. The payment of excise duty tantamounts to reversal of credit taken on inputs and cenvat credit cannot be denied on the ground that no excise duty was leviable.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2679

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