2014 (7) TMI 232 - AT - Central Excise

Tribunal grants relief on Cenvat credit for non-manufacturing process

M/s ASIAN COLOUR COATED ISPAT LTD. Versus COMMISSIONER OF CENTRAL EXCISE, DELHI-III

The Tribunal set aside the Commissioner's order, allowing the appeal and granting relief to the appellant. It was held that the activity of slitting and ... CENVAT Credit - cutting or slitting of steel sheet in coil - Revenue contends that activity of assessee does not amount to manufacture - whether such availment of credit, which already stand utilized by them for payment of duty on their final product is required to be denied to them - Difference of opinion - Matter referred to larger bench:- Whether Cenvat credit on inputs can be allowed to be availed and further passed on to the buyers despite activity of slitting and pickling on CR coils undertaken does not amount to manufacture as held by Member (Judicial). OR Whether once an activity of slitting and pickling of CR Coils does not amount to manufacture as held by Hon'ble Delhi High Court in the case of Faridabad Iron & Steel Traders Association Vs. Union of India in [2003 (11) TMI 107 - HIGH COURT OF DELHI] and Circular No. 940/01/2011-CX dated 14.10.2011 and 911/01/2010 CX dated 14.01.2011 issued by Board, then Cenvat credit on inputs cannot be allowed and it also subsequently cannot be passed over to buyers as held by Member (Technical). Issues Involved:1. Whether the activity of slitting and pickling HR coils amounts to manufacture.2. Whether the appellant is entitled to avail Cenvat credit on inputs used in a non-manufacturing process.3. Whether the duty paid on the final product can be considered as reversal of the Cenvat credit.4. Applicability of Section 5(B) of the Central Excise Act, 1944.5. Impact of Circulars No. 911/1/2010-CX and 940/1/2011-CX on the issue.6. Revenue neutrality and its implications on the case.Issue-wise Detailed Analysis:1. Whether the activity of slitting and pickling HR coils amounts to manufacture:The judgment acknowledges that the activity of slitting and pickling HR coils does not amount to manufacture as per the Hon'ble Delhi High Court in the case of Faridabad Iron & Steel Traders Association V/s. Union of India. This is a settled proposition and not disputed.2. Whether the appellant is entitled to avail Cenvat credit on inputs used in a non-manufacturing process:The Commissioner denied the benefit of Cenvat credit on the ground that the activity did not amount to manufacture, making the appellant ineligible for the credit. The appellant argued that the credit availed was used to pay duty on the final product, making the exercise revenue-neutral. The Tribunal referred to several decisions, including CCE V/s. Creative Enterprises, which held that if duty is paid on the final product, Modvat credit cannot be denied even if the activity does not amount to manufacture.3. Whether the duty paid on the final product can be considered as reversal of the Cenvat credit:The Tribunal found that the duty paid on the final product should be considered as reversal of the Cenvat credit. This was supported by multiple precedents, including the Tribunal's decision in PSL Holdings Ltd. V/s. CCE, Rajkot, and Vickers Systems International Ltd. V/s. CCE, Pune-I, which held that the utilization of credit for payment of duty effectively reverses the credit.4. Applicability of Section 5(B) of the Central Excise Act, 1944:The Tribunal noted that Section 5(B) empowers the Central Government to issue notifications for non-reversal of credit when the process is held not to be chargeable to excise duty. However, the absence of such a notification does not preclude the Tribunal from deciding the issue based on judicial precedents. The Tribunal emphasized that the lack of a notification under Section 5(B) does not bar the appellant from contesting the issue on merits.5. Impact of Circulars No. 911/1/2010-CX and 940/1/2011-CX on the issue:The Tribunal examined the circulars and concluded that they do not override judicial decisions. The circulars were intended to guide the field formations and did not have the authority to influence judicial or quasi-judicial functions. The Tribunal cited the Hon'ble Delhi High Court's decision in Faridabad Iron & Steel Traders Association, which held that executive instructions cannot interfere with quasi-judicial functions.6. Revenue neutrality and its implications on the case:The Tribunal found the situation to be revenue-neutral since the duty paid on the final product was higher than the credit availed. This was supported by the Hon'ble Supreme Court's decision in CCE, Vadodara Vs. Narmada Chematur Pharmaceuticals Ltd., which held that when the duty paid and the credit availed are identical, the situation is revenue-neutral.Separate Judgments:One member of the Tribunal disagreed with the majority view, emphasizing that the activity did not amount to manufacture and thus the credit should not be allowed. This member upheld the Commissioner's order, arguing that the appellant's practice contravened the law and that the duty paid on the final product did not justify the credit availed.Conclusion:The majority of the Tribunal set aside the Commissioner's order, allowing the appeal and granting consequential relief to the appellant. The Tribunal concluded that the credit availed by the appellant, utilized for paying duty on the final product, effectively reversed the credit, making the situation revenue-neutral.