2022 (12) TMI 1187 - AT - Central Excise

Tribunal allows appeal, overturns denial of Cenvat credit for repacking activities.

The Tribunal allowed the appeal in favor of the appellant, overturning the Commissioner (Appeals)'s decision to deny wrongly availed Cenvat credit for ... Wrongful availment and utilization of CENVAT Credit - recovery alongwith interest and penalty - process amounting to manufacture or not - HELD THAT:- As no manufacturing activity was undertaken by them, their premises was simply a godown used for dispatch of the finished goods. The only activity that was being undertaken in the said godown is repacking and relabeling of excisable goods and dispatch thereof. These activities undertaken in respect of the goods of Chapter 39 & 40 did not amount to manufacture. Accordingly the appellant was neither required to pay any central excise duty nor entitled to any Cenvat credit in respect of these goods. The contention as raised by the Revenue that the activities undertaken by the appellant do not amount to manufacture, but still undisputedly the appellant has paid the duty in respect of the finished goods. Having accepted the payment of duty, Revenue could not have denied the Cenvat credit availed by the appellant. Appeal allowed. Issues Involved:1. Denial of wrongly availed Cenvat credit.2. Manufacturing activity for eligibility of Cenvat credit.3. Revenue neutrality and time-barred demand.4. Appeal against the order-in-original.Issue 1: Denial of wrongly availed Cenvat creditThe appellant, a manufacturer of excisable goods, was found to be repacking and relabeling goods without any manufacturing activity, leading to the denial of Cenvat credit. The Commissioner (Appeals) confirmed the demand of wrongly availed credit, ordering recovery under relevant sections of the Central Excise Act, 1944. The appellant contested this, arguing that the duty paid should be considered as a reversal of credit, citing various legal precedents supporting their position. However, the Revenue maintained the findings of the impugned order.Issue 2: Manufacturing activity for eligibility of Cenvat creditThe crux of the appeal revolved around whether the repacking and relabeling activities undertaken by the appellant qualified as manufacturing under Section 2(f) of the Central Excise Act, 1944. The Commissioner (Appeals) determined that no new commercial product emerged from these activities, thereby not meeting the definition of 'manufacture.' Legal precedents, including judgments from the Hon'ble Apex Court and various High Courts, were cited to support the denial of Cenvat credit due to the absence of manufacturing.Issue 3: Revenue neutrality and time-barred demandThe appellant argued for revenue neutrality, claiming that the duty paid was passed through invoices to customers who availed credit, resulting in no revenue loss. However, the Commissioner (Appeals) rejected this argument, emphasizing that revenue neutrality couldn't justify the wrongful availing of Cenvat credit. Additionally, the appellant contended that the demand was time-barred, but the Revenue maintained that penalty and interest could be imposed.Issue 4: Appeal against the order-in-originalThe appeal stemmed from a show cause notice issued to the appellant, challenging the denial of Cenvat credit and subsequent penalties imposed. The Additional Commissioner's order was upheld by the Commissioner (Appeals), leading to the current appeal. The Tribunal, considering the legal arguments and precedents presented, set aside the impugned order and allowed the appeal in favor of the appellant, emphasizing the acceptance of duty payment as a basis for retaining Cenvat credit.This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, relevant legal provisions, and the final decision rendered by the Tribunal.