2018 (4) TMI 285 - AT - Central Excise

Tribunal rules in favor of appellant in key issues regarding Cenvat Credit Rules

The Tribunal ruled in favor of the appellant on all three key issues. It held that the rectifier units were not cleared 'as such' as they underwent ... CENVAT credit - imported Rectifiers - Department was of the view that the process carried out by the appellant within the factory do not bring about any new product and hence the Rectifiers are to be considered as inputs cleared as such - Rule 3(5) of CCR - Held that: - these tests as well as programming carried out within the factory are in the nature of acceptance testing i.e. to mean that the tests are required to ensure that the goods which are being cleared in the spare parts market satisfied the conditions which are prevailed in India. Without carrying out these tests, the imported Rectifiers are not considered fit for use in the Indian conditions. As seen from the technical write up, of various processes carried out within the factory, we are of the view that the imported Rectifiers cannot be considered as cleared N as such'. These goods are cleared only after carrying out various tests which by themselves may not amount to manufacture but are necessary to complete the manufacturing process of the imported Rectifiers. The processes carried out are in the nature of finishing process which can be considered as ancillary to the manufacture of a finished product - there is no justification for demand of such amount under Rule 3 (5). Appeal allowed - decided in favor of appellant. Issues:1. Whether the rectifier units cleared by the assessee are to be treated as removal 'as such' and required to reverse the credit availed of imported rectifiers.2. Whether the processes carried out by the assessee amount to manufacture under Section 2(f) of the Central Excise Act, 1944.3. Whether penalties imposed by the adjudicating authority are justified.Analysis:Issue 1:The dispute revolves around whether the rectifier units cleared by the assessee should be considered as removal 'as such' and if the credit availed on imported rectifiers should be reversed. The Tribunal examined the technical write-up submitted by the appellant, which detailed the various tests and processes the rectifiers undergo in the factory. These tests are deemed necessary to ensure the quality and suitability of the rectifiers for the Indian market. The Tribunal concluded that the rectifiers are not cleared 'as such' as they undergo essential tests before clearance, which are not incidental to manufacture but are crucial for product quality. Thus, the demand for reversing the credit availed under Rule 3(5) of the Cenvat Credit Rules was deemed unjustified.Issue 2:Regarding whether the processes carried out by the assessee amount to manufacture under Section 2(f) of the Central Excise Act, the Tribunal noted that the processes, such as testing and programming, were acceptance tests to ensure compliance with Indian standards. These processes were considered finishing processes ancillary to the manufacture of a finished product. The Tribunal found no justification for demanding an amount under Rule 3(5) of the Cenvat Credit Rules, as the processes were essential for product quality and not incidental to manufacture.Issue 3:The Tribunal also addressed the penalties imposed by the adjudicating authority. It was observed that the penalties were unwarranted as the appellant regularly filed returns and communicated with the Revenue in good faith. The Tribunal set aside the penalties imposed under Rule 15(2) and Rule 15(1) of the Cenvat Credit Rules, stating that the appellant's belief in the processes constituting manufacture was bona fide. The penalties were deemed unjustified, and the appeal was allowed.In conclusion, the Tribunal set aside the impugned order, allowing the appeal and miscellaneous application. The judgment emphasized the importance of the processes carried out by the assessee for ensuring product quality and suitability for the market, ultimately ruling in favor of the appellant on all three key issues.