2012 (7) TMI 141 - HC - Central Excise

Assessee entitled to retain CENVAT credit on HR/CR coils duty paid before 2010 circular clarification under relevant rules

The HC upheld the CESTAT's decision that the assessee was entitled to retain CENVAT credit on duty paid for HR/CR coils used in producing decoiled HR/CR ... CENVAT credit - manufacture - reversal of input credit - departmental acceptance of duty on final products - withdrawal of Board circularCENVAT credit - manufacture - reversal of input credit - withdrawal of Board circular - departmental acceptance of duty on final products - Whether CENVAT credit taken on duty paid on HR/CR coils used in production of decoiled HR/CR coils required reversal where the Board withdrew an earlier circular and departmental position on manufacture changed - HELD THAT: - The Court examined whether the Revenue could call for reversal of CENVAT credit by relying on the Board circular of 2nd March 2005 which withdrew the earlier circular of 7th September 2001. Prior to 1st March 2005 the Board's circular had treated cutting/slitting of HR/CR coils as manufacture; the assessee additionally carried out pickling and oiling, processes involving technical input and substantial plant and machinery which were not addressed by the 2001 circular. The Board's later clarification, treating pickling as not amounting to manufacture, was only issued on 24th June 2010, after the relevant period. On the facts of the relevant period (2nd March 2005 to 31st December 2005) the position was not settled such that the assessee can be treated as having paid duty knowing the products were not manufactured. Further, the assessment in respect of the decoiled HR/CR coils cleared on payment of duty was not reversed and the department had accepted duty on the final products. Following precedent that where the department has accepted duty on final products, the benefit of CENVAT credit availed need not be reversed even if subsequently the activity is held not to be manufacture, the CESTAT's decision to refuse reversal of credit was held correct. [Paras 8, 9, 10, 11]The CESTAT was justified in holding that the CENVAT credit need not be reversed; the assessee's availing of credit during the relevant period is sustainable.Final Conclusion: The appeal is dismissed; the order of the CESTAT upholding non-reversal of CENVAT credit for the period 2nd March 2005 to 31st December 2005 is affirmed, with no order as to costs. Issues:1. Whether CESTAT was justified in holding that CENVAT credit of duty paid on HR/CR coils availed and utilized by the assessee for paying duty on decoiled HR/CR coils need not be reversed.Analysis:The dispute in this case revolves around the period from 2nd March 2005 to 31st December 2005. The assessee engaged in decoiling HR/CR coils, cutting, slitting, pickling, and oiling them as per buyer specifications. The assessee took credit of duty paid on HR/CR coils and used it to pay duty on decoiled coils at clearance, where duty paid on decoiled coils exceeded that on HR/CR coils. A show cause notice challenged this, stating decoiling did not constitute manufacture, thus no credit was allowed. The adjudicating authority upheld this, demanding Rs. 38,43,070 with interest and penalty. The Commissioner (Appeals) and CESTAT confirmed and allowed the appeal, respectively, leading to the current appeal by the Revenue.The Revenue argued that decoiling did not constitute manufacture post CBEC Circular of 2nd March 2005, thus no credit should have been taken. They claimed the assessee paid duty erroneously and sought credit regularization, rejected by the Board. However, the Court found no merit in these contentions. Until 1st March 2005, the Revenue accepted the activity as manufacturing, allowing credit based on a prior Circular. The withdrawal of this Circular on 2nd March 2005 raised the issue. Notably, additional activities like pickling and oiling were not addressed in the withdrawn Circular, and a subsequent Circular in 2010 clarified pickling did not constitute manufacture. Therefore, during the relevant period, the issue was not settled, and if duty on decoiled coils was paid in good faith, credit on HR/CR coils was justified.Moreover, the Court noted that no reversal or refund on assessment of decoiled coils was ordered, citing precedents where CENVAT credit need not be reversed if final product duty was accepted, even if the activity did not amount to manufacture. The Court found no fault with CESTAT's decision based on these grounds, dismissing the appeal without costs.