Tribunal allows CENVAT credit for re-packed products, penalty overturned

The Tribunal set aside the impugned order denying CENVAT credit to M/s Akzo Nobel India Ltd on 'speciality polymers' re-packed and re-labelled before clearance. Relying on precedent, the Tribunal held that since the duty paid exceeded the credit availed, the appellant was not obligated to reverse the credit. The penalty imposition was deemed unsustainable, and the appeal was allowed, providing consequential relief to the appellant. The judgment was pronounced on 06/11/2018.

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Issues: Denial of CENVAT credit on 'speciality polymers' re-packed and re-labelled before clearance.

Analysis:
1. Issue of CENVAT Credit Denial: The appellant, M/s Akzo Nobel India Ltd, appealed against the denial of CENVAT credit amounting to &8377;1,74,42,635 availed on duties of central excise paid on the procurement of 'speciality polymers' that were re-packed and re-labelled before clearance on payment of appropriate duties of central excise totaling &8377;2,31,44,585 between 2004-05 and 2008-09. The Commissioner of Central Excise imposed a penalty of the same amount, which the appellant sought to set aside.

2. Contentions and Findings: The appellant considered the 'speciality polymers' as 'inputs' under the CENVAT Credit Rules, 2004, and availed credit on the duties. After re-packing and re-labelling, the polymers were cleared on payment of appropriate duties exceeding the duty borne on procurement, debiting the CENVAT credit account. The impugned order directed recovery of the credit, citing the process as ineligible due to not resulting in manufactured goods and the 'inputs' not being received in the production factory.

3. Legal Interpretation: The Tribunal refrained from determining whether re-packing and re-labelling constituted manufacturing. However, it emphasized that if procured inputs, capable of being used in the manufacturing process, were cleared as such, the law mandates reversal of availed CENVAT credit at the time of receipt. The duty liability on the value-added clearance should not be less than the procurement duty. The records confirmed the debits in the CENVAT credit account during the removal of 'speciality polymers.'

4. Precedent and Decision: The Tribunal referred to the case of Ajinkya Enterprises v. Commissioner of Central Excise, Pune-III, which highlighted that if an activity does not amount to manufacture, duty equal to the credit taken on input clearance must be paid. In this case, the duty paid exceeded the credit availed, aligning with various judicial pronouncements. Following these precedents, the Tribunal concluded that the appellant was not required to reverse the credit, rendering the demand in the impugned order unsustainable. Consequently, the penalty imposition was also deemed unsuccessful.

5. Final Decision: The Tribunal set aside the impugned order and allowed the appeal, providing consequential relief to the appellant. The judgment was pronounced in court on 06/11/2018.

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