Whether demand by disallowing credit on inputs is proper on the allegation that process undertaken by appellants does not amounts to manufacture?

PJ/Case Law/2013-14/1664

Case:-HASNA TUBES (P) LTD. VERSUS COMMISSIONER OF C.EX., CHANDIGARH

Citation:-2013(293) E.L.T. 382 (Tri.-Del.)

Brief Facts:-This is an appeal filed by M/s. Hansa Tubes (P) Ltd. (hereinafter referred to as appellants) against the order-in-original passed by Commissioner Central Excise, Chandigarh.

Brief facts of the case are that appellants are engaged in manufacture of Galvanized Plain Coils(in short ‘G.P. Coils’), Galvanized Plain Sheets, (G.P. Sheets) and Galvanized Corrugated Sheets, (G.C. Sheet) falling under Sub-Heading No. 7210.19 and 7210.11 of Schedule to the Central Excise Tariff Act. They are manufacturing G.P. Coils primarily from inputs, C.R. Coil and Zinc and then use them captively to manufacture G.C. Sheets. They also clear the G.P. Coils to independent customers. It was observed by the Central Excise Officers during the course of audit, that during the year 2002-2003 and 2003-2004, the appellants had wrongly availed Cenvat Credit to the tune of Rs. 1,21,86,295/- on C.R. Coils and Zinc, inasmuch as the said goods were used in the process of galvanization of C.R. Coils for conversion into G.P. Coils. It was the view of the Department that conversion of C.R. Coils into G.P. Coils involves only process of galvanization which does not amount to manufacture under Section 2(f) of the Central Excise Act. The appellants also cleared said goods G.P. Coils for export on payment of duty under claim for rebate amounting to Rs. 88,71,269/- by debiting the duty amount from the wrongly taken Cenvat credit amount. Accordingly the Show Cause Notice dated 4-5-2005 was issued to the appellants for disallowing the Cenvat credit of Rs. 1,21,86,295/- and also demanding the amount of Rs. 88,71,269/- under Section 11A of the Central Excise Act, along with interest and also proposing the penalty. The said SCN was adjudicated by the Commissioner by the impugned order in which he confirmed that the demand of Cenvat credit amounting Rs. 1,17,45,077/, It was also ordered that out of the said amount to Rs. 88,71,269/- is to be paid through PLA and equal amount of penalty was also imposed under Rule 13 of the Cenvat Credit Rules read with Section 11AC of the Act. The appellants challenged this order in the present appeal before the Tribunal.

Appellant Contentions:- The appellant submitted that that there is no dispute regarding the fact that C.R. Coils are basic raw material for G.P. Sheets as well as C.C. Sheets. He submits that even if it is held that process of conversion does not amount to manufacture in the Central Excise Act, inputs can be cleared as such or after being partially processed on reversal of amount equivalent to credit availed on such inputs. Therefore, the duty paid on inputs can at best be treated as reversal of credit taken on C.R. Coils. He further submits once the duty on the final product is paid the Cenvat credit on the inputs cannot be denied to them. As regards the demand of rebate claim amounting to Rs. 88,71,269/- he submits that under Rule 18 of the Central Excise Rules, the exporter is entitled to claim rebate of duty paid on inputs as well as duty paid on final products. He submits that even if it is held that process does not amount to manufacture they are entitled to rebate of duty paid on inputs under Rule 18 of the Central Excise Rules. He also stated that SCN in this case was issued on 4-5- 2005 and part of the demand are also hit by time limitation as they have not suppressed any fact from the department.

Respondent Contentions:-The respondent submitted that since the process undertaken by the appellants does not amount to manufacture, question of taking credit does not arise. He therefore submits that they have ri^ghtly been disallowed the Cenvat credit in this case.

Reasoning of Judgment:-We have considered the submission from both parties and perused the record, we find that the Cenvat credit in the present case has been denied to the appellants on the ground that process of galvanization does not amount to the manufacture. We also take note that under Cenvat Credit Rules, the inputs can be cleared as such or after being partially processed on reversal of amount equivalent to credit availed on such inputs. That means if credit has been taken by the appellants on the inputs i.e. C.R. Coils then the Coil can be cleared as such or after some processing after reversal of the Cenvat credit availed on the C.R. Coils. In the present case appellants have taken the Cenvat credit and cleared the finished goods after paying duty through the Cenvat account entries and payment of duty may be more than the credit attributable to such inputs. We find that the Hon'ble High Court of Gujarat in caseCommissioner of Central Excise v. Delta Corporationas reported in 2013 (287) E.L.T. 15 (Guj.) has held that credit could not be denied on the ground that no manufacturing activity was carried on by the assessed. We find that in the present case the demand has been raise disallowing the Cenvat credit on C.R. Coils and Zinc. Demand is unsustainable as Rules allow the clearance of inputs as such or after partially processing on reversal of the Cenvat credit availed on these inputs. The duty paid on theG.P. Coils etc., is more than Cenvat credit taken and needs to be adjusted against the demand of the Cenvat credit. Therefore the demand of Cenvat credit is not sustainable against the appellants.

Appeal is disposed in above manner. Cross objection are also disposed of.
Decision:-Appeal is allowed.

Comment:- The crux of this case is that Cenvat credit cannot be denied on the ground that process of galvanization undertaken by the appellant does not amount to manufacture as Rules allow the clearance of inputs as such or after partially processing them on reversal of the Cenvat credit availed on these inputs. When duty is paid on the final product, i.e.G.P. Coils, it amounts to reversal of credit availed on inputs and so the demand of credit reversal is not sustainable.

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PJ/Case Law/2013-14/1664

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