2014 (1) TMI 472 - AT - Central Excise

Revenue appeal dismissed on manufacturing process & duty rates

CCE, Chennai  III Versus M/s. Laxindco Steel Pvt. Ltd.

The appeal filed by the Revenue against the Commissioner (Appeals) order, which partially allowed the respondent's appeal regarding the manufacturing ... Duty demand - Concessional rate of duty under SSI exemption Notification No. 9/2002-CE dated 1.3.2002 and 9/2003 dated 1.3.2003 - Availment of CENVAT Credit - Held that:- benefit of availment of credit of duty on inputs by the ‘wire drawing units’ was withdrawn on 29.5.2003 by a circular issued by the Board. However, certain wire drawing units continued to pay a sum representing duty, and continued to pass on the credit of amount paid as duty to the ultimate buyer of drawn wire for further manufacture. By an amendment in the Budget 2004, Note 10 was inserted in Section XV of the Central Excise Tariff Act, 1985 to declare the said process as amounting to ‘manufacture’. However, as the said Section Note was effective from 9.7.2004, it did not resolve the problem for the said period. Show Cause Notices were issued to wire drawing units for recovery of Cenvat Credit availed on inputs on the grounds that the process of wire drawing did not amount to manufacture for the said period. Show Cause Notices were also issued to the downstream buyers of ‘drawn wires’ who availed Cenvat Credit of amount paid as duty on drawn wire, on the ground that the sum paid on clearance of ‘drawn wire’ by wire drawing unit did not represent central excise duty. Such wire drawing units could also not claim the refund of amount paid as duty on drawn wire, on the ground of unjust enrichment. Retrospective amendment in Rule 16 is aimed at facilitating ‘wire drawing units’, which had paid a sum equal to the duty leviable on ‘drawn wire’ after availing the credit of duty paid on inputs for the said period. It is aimed at regularizing availment of credits at two stages and payment of an amount representing duty at one stage. The purpose of the amendment is to regularize credit taken at the input stage (on wire-rod), credit taken by the downstream user of ‘drawn wire’ and the amount paid as central excise duty on clearance of drawn wire. In other words, wire drawing units, which had paid a sum equal to duty leviable on drawn wire, would be eligible to avail the credit of duty paid on inputs and utilize the same for payment of duty on drawn wire for the period of amendment. The sum paid by the wire drawing unit in such cases will be treated as duty and shall be allowed as credit to the buyer of drawn wire, in terms of the amendment. This amendment would not create any additional liability on any wire drawing unit which did not pay duty on drawn wire during the period of amendment - Decided against Revenue. Issues:1. Appeal against Commissioner (Appeals) order partially allowing respondent's appeal.2. Whether the process undertaken by the respondent amounts to manufacture.3. Availment of concessional rate of duty under SSI exemption Notifications.4. Clarification on wire drawing units as assesses for a specific period.5. Withdrawal of benefit of credit of duty on inputs for wire drawing units.6. Show Cause Notices issued for recovery of Cenvat Credit.7. Retrospective amendment in Rule 16 of Central Excise Rules, 2002.8. Regularizing credit taken at input stage and payment of duty for drawn wire.9. Eligibility of wire drawing units to avail credit of duty paid on inputs.Analysis:1. The appeal was filed by the Revenue against the order of the Commissioner (Appeals) where the respondent's appeal was partly allowed. The issue revolved around whether the respondent's process of manufacturing dry steel bars amounted to actual manufacture, leading to a demand notice for irregular CENVAT credit availed by the respondent.2. The respondent, engaged in manufacturing dry steel bars, undertook various operations like pointing, pickling, cold drawing, and grinding using different machinery. They availed concessional duty rates under SSI exemption Notifications. The issue of whether these processes constituted manufacturing was central to the case, leading to a demand for recovery of duty and penalties.3. The appellant cited a Supreme Court judgment and a Board circular to support their argument that certain processes, like wire drawing, do not amount to manufacturing. The Board's clarification via Circular No. 831/8/2006-CX was crucial in determining the applicability of duty credit on inputs for wire drawing units.4. The retrospective amendment in Rule 16 of the Central Excise Rules, 2002, declared wire drawing units as assesses for a specific period. This amendment aimed to regularize credit taken at the input stage and ensure the payment of duty for drawn wire, addressing issues related to the manufacturing process and duty implications.5. Show Cause Notices were issued for the recovery of Cenvat Credit availed by wire drawing units and downstream buyers of drawn wires. The notices highlighted the discrepancy in duty payments and credit availed, emphasizing the need for compliance with the amended rules and regulations.6. The amendment facilitated wire drawing units that had paid duty on drawn wire to avail credit on duty paid on inputs. This regularization aimed to streamline the credit process at different stages and ensure compliance with central excise duty obligations, benefiting both manufacturers and buyers in the supply chain.7. Considering the Board's circular and the retrospective amendment in Rule 16, the judgment concluded that there was no reason to interfere with the Commissioner (Appeals) order. As a result, the appeal filed by the Revenue was dismissed, highlighting the importance of adhering to regulatory amendments and clarifications in excise duty matters.