2011 (5) TMI 59 - AT - Central Excise

Contractors as Manufacturers of PSC Poles Entitled to CENVAT Credit

The contractors engaged by the Tamilnadu Electricity Board (TNEB) were considered the manufacturers of PSC poles based on the contract terms. They were ... Demand of duty and interest - Manufacturers - There is a contract between the TNEB and the appellants - As per contract TNEB is supplying cement and steel to the appellants but it is the appellants who are manufacturing the PSC poles at the contracted price - Hence, in view the various terms of the contract as well as the earlier decisions of the Tribunal involving similar contracts between the TNEB and contractors manufacturing PSC poles, hold that the appellants are the manufacturers and therefore the demand of duty and interest is upheld. Cenvat credit - As regards credit of duty paid on cement and steel items supplied free of cost by the TNEB to the appellants - since the appellants are held liable to pay duty on the PSC poles manufactured using such cement and steel, they are in principle eligible for credit of central excise duty paid on the inputs - The appellants undertakes to get the invoice endorsed and satisfy other requirements under the CENVAT Credit Rules so as to enable the original authority to allow credit, subject to verification - Hence, remanding the matter to the original authority in regard to grant of CENVAT credit on inputs used in the manufacture of PSC poles. Penalty - It was in dispute as to whether the appellants should pay the duty or the Electricity Board will pay the duty - Hence, waive the penalty imposed on the appellants. Issues:1. Whether the contractors engaged by the Tamilnadu Electricity Board (TNEB) to manufacture PSC poles are to be considered as manufacturers or if TNEB is the manufacturer.2. If the contractors are considered manufacturers, whether they are entitled to CENVAT credit on cement and steel items received from TNEB.3. Whether penalty is warranted to be imposed on the contractors.Analysis:Issue 1: Manufacturer IdentificationThe Tribunal reviewed previous decisions and found that in similar cases, the Electricity Board was considered the manufacturer. However, based on the contract terms between TNEB and the contractors, it was established that the contractors were the actual manufacturers of the PSC poles. The contractors were responsible for manufacturing, paying various charges, and using TNEB's resources, leading to the conclusion that they were the manufacturers. Therefore, the demand of duty and interest was upheld in favor of the contractors.Issue 2: CENVAT Credit EligibilityThe Tribunal acknowledged that since the contractors were held liable to pay duty on the PSC poles manufactured using cement and steel supplied by TNEB, they were eligible for credit of central excise duty paid on these inputs. Despite objections regarding invoice details, the contractors committed to fulfilling requirements under the CENVAT Credit Rules to enable the allowance of credit. The appeal was remanded to the original authority for verification and granting of credit on inputs used in manufacturing the PSC poles.Issue 3: Penalty ImpositionConsidering the dispute over duty payment responsibility between the contractors and the Electricity Board, the Tribunal took a lenient view and waived the penalty imposed on the contractors. The uncertainty regarding duty payment was a key factor in this decision.In conclusion, the appeal was partly allowed, with the matter of granting CENVAT credit on inputs used in manufacturing PSC poles remanded to the original authority for further review and verification. The contractors were deemed the manufacturers based on the contract terms, making them eligible for the credit, and the penalty was waived due to the ambiguity surrounding duty payment responsibility.