Manufacture test under excise credit rules defeats reversal demand for re-rubberised rollers and accepts input credit expunction.

Re-rubberisation of old or used rollers undertaken as job work was held not to constitute manufacture under Section 2(f) of the Central Excise Act, 1944, so the rollers could not be treated as final products for Rule 57CC, Rule 57AD or Rule 6 of the Cenvat Credit Rules. Because those credit-reversal provisions apply only where dutiable and exempted final products are manufactured and cleared simultaneously, the demand for 8% of the price of the re-rubberised rollers was unsustainable. The assessee's reversal of credit on inputs contained in compounded rubber, made on a formula earlier accepted by the department and left unchallenged by any alternative method, was also accepted.

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Issues: (i) whether the re-rubberisation of old or used rollers undertaken as job work amounted to manufacture so as to attract Rule 57CC of the Central Excise Rules, 1944, Rule 57AD of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2001, and justify demand of 8% of the price of the re-rubberised rollers; (ii) whether the credit expunged by the assessee on inputs contained in compounded rubber used for the job work was liable to be accepted.

Issue (i): whether the re-rubberisation of old or used rollers undertaken as job work amounted to manufacture so as to attract Rule 57CC of the Central Excise Rules, 1944, Rule 57AD of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2001, and justify demand of 8% of the price of the re-rubberised rollers.

Analysis: The job work was held not to amount to manufacture under Section 2(f) of the Central Excise Act, 1944. On that basis, the re-rubberised rollers were not treated as final products for the purposes of the cited rules. Those rules apply only where dutiable and exempted final products are manufactured and cleared simultaneously, which was not the situation here.

Conclusion: The demand of 8% of the price of the re-rubberised rollers was not sustainable and the assessee's relief on this issue was upheld.

Issue (ii): whether the credit expunged by the assessee on inputs contained in compounded rubber used for the job work was liable to be accepted.

Analysis: The expunction of credit was based on a formula earlier adopted by the assessee and accepted by the department. No different formula was suggested by the Revenue. The credit reversal was therefore treated as consistent with the governing legal position.

Conclusion: The expunction of credit was accepted.

Final Conclusion: The Revenue's challenge failed in full, and the order in favour of the assessee was sustained.

Ratio Decidendi: Where a process does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944, the resulting goods cannot be treated as exempted final products for the purposes of the credit-reversal provisions applicable only to simultaneous manufacture and clearance of dutiable and exempted final products.

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