2014 (9) TMI 974 - AT - Central Excise

Tribunal: Slitting & Pickling Not Manufacturing; Cenvat Credit Allowed; Penalty Set Aside

ASIAN COLOUR COATED ISPAT LTD. Versus COMMISSIONER OF C. EX., DELHI-III

The Tribunal held that the process of slitting and pickling of HR coils does not amount to manufacturing. The appellant was entitled to avail Cenvat ... Denial of CENVAT Credit - Whether Cenvat credit on inputs can be allowed to be availed and further passed on to the buyers despite activity of slitting and pickling of CR coils undertaken does not amount to manufacture - Difference of opinion - Majority order - Held that:- The appellant’s main raw material is duty paid H.R. Coils, which are used by them for manufacture of C.R. Coils/strips, G.P. coil/sheet, PPGI Coated Coils, G.C. Sheets, etc. Some quantity of H.R. Coils in respect of Cenvat credit has been taken, are subjected to the process of slitting and pickling and such slitted and pickled sheets are sold. There is no dispute that the appellant had cleared such slitted and pickled sheets on payment of duty at the applicable rate on the transaction value, and as such duty paid on the slitted/pickled H.R. Sheets is ₹ 43,43,87,669/- as against the Cenvat credit of ₹ 37,03,91,917/- taken in respect of the H.R. Coils used. Moreover, when the Department’s case is that the process undertaken by the appellant does not amount to manufacture, it amounts to saying that the appellant have cleared the Cenvat credit availed inputs as such and this is something which is not prohibited, if at the time of removal of Cenvat credit availed inputs, in terms of the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004, an amount equal to the Cenvat credit availed is paid under an invoice issued under Rule 9 of the Central Excise Rules, 2002. There is no dispute that the amount paid by the appellant is more than the Cenvat credit availed. In my view, therefore, the assessee should not be penalized for paying more amount than their actual duty liability. Since Rule 3(5) itself requires that removal of cenvated inputs as such on payment of an amount equal to the Cenvat credit availed has to be under an invoice issued under Rule 9 of the Central Excise Rules, 2002 and since in terms of the Rule 9(1) of the Cenvat Credit Rules, 2004, an invoice issued by a manufacturer under Rule 9 even for removal of cenvated inputs/capital goods as such is a valid document for availing Cenvat credit, the appellant’s customer could avail Cenvat credit on the basis of the invoices for pickled sheets issued by the appellant and as such, there is no illegality in the appellant’s passing on the Cenvat credit. Since the amount paid on the clearance of pickled H.R. sheets is more than the Cenvat credit availed, the Cenvat credit availed stands more than reversed and there is no need to recover the same again. It is also seen that this issue stands decided in favour of the appellant by the Tribunal in the case of Ajinkya Enterprises (2013 (6) TMI 610 - CESTAT MUMBAI) and this judgment of the Tribunal has been upheld by the Bombay High Court vide judgment reported in [2012 (7) TMI 141 - BOMBAY HIGH COURT]. - impugned order is set aside - Decided in favour of assessee. Issues Involved:1. Whether the process of slitting and pickling of HR coils amounts to manufacture.2. Whether the appellant is entitled to avail Cenvat credit on HR coils used in the process of slitting and pickling.3. Applicability of Section 5B of the Central Excise Act, 1944.4. Revenue neutrality and reversal of Cenvat credit.5. Impact of Board Circulars on the issue.6. Penalty imposition on the appellant and its officials.Issue-wise Detailed Analysis:1. Whether the process of slitting and pickling of HR coils amounts to manufacture:The judgment references the Hon'ble Delhi High Court case of Faridabad Iron & Steel Traders Association v. Union of India, which held that the process of cutting or slitting steel sheets in coils does not amount to manufacture. The Tribunal agreed that the activities of cutting or slitting of steel sheet in coils are non-manufacturing activities. However, the judgment does not explicitly address whether the pickling process alone constitutes manufacturing, leaving some ambiguity.2. Whether the appellant is entitled to avail Cenvat credit on HR coils used in the process of slitting and pickling:The Tribunal noted that the appellant availed Cenvat credit on HR coils and utilized the same for payment of duty on the final product. The appellant argued that the credit availed was effectively reversed by paying duty on the final product, which exceeded the credit availed. The Tribunal cited multiple decisions, including CCE v. Creative Enterprises and PSL Holdings Ltd. v. CCE, Rajkot, which support the view that credit availed should not be denied if the duty paid on the final product exceeds the credit availed. The Tribunal concluded that the credit availed and utilized for payment of duty on the final product stands effectively reversed, and thus, should not be denied.3. Applicability of Section 5B of the Central Excise Act, 1944:Section 5B allows the Central Government to issue notifications for non-reversal of Cenvat credit when a process is held by the Court as not chargeable to excise duty. The Tribunal observed that the absence of such a notification does not preclude the appellant from contesting the issue on merits. The Tribunal emphasized that the precedent decisions of higher courts must be followed, and the absence of a Section 5B notification does not negate the appellant's entitlement to Cenvat credit.4. Revenue neutrality and reversal of Cenvat credit:The Tribunal found that the entire situation is revenue neutral because the duty paid on the final product by the appellant exceeded the credit availed. The Tribunal cited various decisions, including the Gujarat High Court's decision in CCE v. Creative Enterprises and the Supreme Court's decision in CCE, Vadodara v. Narmada Chematur Pharmaceuticals Ltd., which support the view that the consequence of duty paid and credit availed being identical is revenue neutrality.5. Impact of Board Circulars on the issue:The Tribunal noted that the circulars issued by the Board, including Circular Nos. 911/1/2010-CX and 940/1/2011-CX, cannot override judicial decisions. The Tribunal cited the Hon'ble Delhi High Court's decision in Faridabad Iron & Steel Traders Association, which held that quasi-judicial authorities should not be influenced by administrative instructions or directions. The Tribunal concluded that the circulars cannot estop the appellant from pursuing legal remedies before the courts.6. Penalty imposition on the appellant and its officials:The Tribunal set aside the penalty imposed by the Commissioner on the appellant and its officials. The Tribunal held that since the credit availed was effectively reversed by paying duty on the final product, the imposition of penalties was not justified.Majority Order:The majority order, delivered by Member (Judicial) and the Third Member (Technical), set aside the impugned order and allowed the appeal with consequential relief to the appellants. The dissenting opinion by Member (Technical) was that the credit availed on inputs against a non-manufacturing activity is not available under the law and should be reversed. However, the majority view prevailed, and the appeal was allowed.