2013 (12) TMI 675 - AT - Central Excise

Industrial valve manufacturer directed to pre-deposit Rs.15 lakhs for CENVAT credit appeal

The Tribunal directed the appellant, a manufacturer of industrial valves, to pre-deposit Rs.15 lakhs for admission of the appeal regarding the reversal of ... Reversal of cenvat credit under Rule 3(5) of Cenvat credit Rules,2004 – Waiver of Pre-deposit – Held that:- The applicants are only inspecting the goods purchased which any prudent buyer of any goods does and hence, the activity is not manufacture - The applicants are only an intermediary to procure goods and supply to 100% EOUs, thereby stripping CENVAT credit available on the goods for the use by appellants – Following Lakshmi Automatic Loom Works Ltd. Vs Commissioner of Central Excise, Trichy [2008 (10) TMI 57 - CESTAT CHENNAI] – credit was to be reversed – Thus, the applicant directed to pre-deposit a sum of Rupees Fifteen Lakhs as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – Partial stay granted. Issues:1. Reversal of CENVAT credit on goods supplied to 100% EOUs.2. Interpretation of manufacturing activities on procured spares.3. Application of Notification No.6/2006 for exemption on goods supplied against International Competitive Bidding.Analysis:1. The case involved the issue of whether the appellant, a manufacturer of industrial valves, was required to reverse CENVAT credit on goods supplied to 100% EOUs under Rule 3(5) of the CENVAT Credit Rules, 2004. The appellant was found to be reversing credit on goods supplied to units in the Domestic Tariff Area but not to 100% EOUs. Show-cause notices were issued, leading to a demand of Rs.15,45,282, which was confirmed by the adjudicating authority.2. The appellant argued that they engaged in manufacturing activities on the procured spares, such as inspection and calibration, which constituted manufacturing. They contended that manufactured products could be cleared to 100% EOUs without duty payment. The appellant cited a precedent to support their argument, but the Revenue contended that the activities were merely inspection and did not amount to manufacturing. Precedents such as Lakshmi Automatic Loom Works Ltd. were cited to support the Revenue's position that CENVAT credit should be reversed.3. Another aspect of the appeal related to spares supplied under Notification No.6/2006 for goods provided against International Competitive Bidding. The dispute revolved around whether the same type of spares were eligible for exemption under this notification, mirroring the main issue of CENVAT credit reversal.4. After considering the arguments from both sides and referencing the decisions of the Larger Bench of the Tribunal, the Tribunal directed the appellant to pre-deposit Rs.15 lakhs for admission of the appeal. Compliance was required within six weeks, with a stay on the collection of the remaining adjudged dues pending the pre-deposit. The matter was scheduled for a compliance report on a specified date.This comprehensive analysis highlights the key legal issues, arguments presented by both parties, relevant precedents, and the final decision of the Tribunal in the case.