2023 (11) TMI 55 - AT - Central Excise

Tribunal Partially Allows Appeal: Upholds Duty on Packaging, Confirms CENVAT Credit Recovery, Sets Aside Differential Duty.

Flexifoil Packaging Pvt Ltd. Versus Commissioner of Central Excise, Bangalore-III

The Tribunal upheld the demand for duty on packaging charges of Rs. 24,586 and confirmed the recovery of CENVAT Credit of Rs. 44,469 on rejected/returned ... Levy of Excise Duty - packaging charges being part of the value but no duty was paid claiming it as freight charges - recovery of CENVAT Credit on rejected/returned goods - demand of differential duty availed on inputs used in the manufacture of Aluminium Foils. Demand of Rs. 24,586/- on packaging charges being part of the value but no duty was paid claiming it as freight charges - HELD THAT:- Analyzing the evidences, the adjudicating authority after scrutiny of the relevant invoices placed on record, recorded the findings that even though the appellant have claimed that these are transport charges and not handling charges, however, supporting transport receipt has not been produced. Since no evidence has been produced by the appellant before the lower authorities nor before this Tribunal, thus, duty of Rs. 24,586/- payable on packaging charges is confirmed. Regarding the CENVAT Credit of Rs. 44,469/- on rejected/returned goods - appellant failed to produce the evidences ie. proper account of receipt and disposal of the same - HELD THAT:- The appellant had not enclosed any evidences in this regard, thus it is clear that they had not maintained proper records of receipt goods, processes carried out and disposal of the said goods under Rule 16 of CER,2002 on which credit availed; hence, the said demand is also confirmed. Recovery of differential duty as equivalent to CENVAT Credit involved on the inputs on the ground that the processes undertaken by the appellant do not result in to manufacture - HELD THAT:- The processes carried out by the Appellant on the Aluminum Foils received in the factory are described as foil wash and thereafter subjected to nitro cellulose and then slit into different sizes as per requirements of customers. It is not a simple process of merely cutting the foils into different sizes but other processes are involved which would definitely satisfy the definition of manufacture pertaining Section 2(f) of Central Excise Act, 1944. Besides, the appellant have been discharging duty on finished goods treating the said process as manufacture - Hon’ble Bombay High Court in the case of Commissioner of Central Excise, Pune-III Vs. Ajinkya Enterprises [2012 (7) TMI 141 - BOMBAY HIGH COURT] held that in the present case, the assessment on decoiled HR/CR coils cleared from the factory of the assessee on payment of duty has neither been reversed nor it is held that the assessee is entitled to refund of duty paid at the time of clearing the decoiled HR/CR coils. The demands of Rs.24,586/- and Rs.44,469/- with interest are confirmed and the demand of Rs.2,30,887/- is set aside. The impugned order is modified to that extent and the appeal is partly allowed to that extent. ISSUES PRESENTED AND CONSIDERED 1. Whether packaging charges characterised as freight/transport and not shown by supporting transport receipts are excluded from assessable value or liable to duty as part of value. 2. Whether CENVAT credit availed on inputs used in goods that were subsequently rejected/returned can be retained where records required by Rule 16 of the Central Excise Rules, 2002 (proper account of receipt, processes and disposal) are not maintained. 3. Whether processes described (foil wash, application of nitrocellulose, slitting) amount to 'manufacture' under Section 2(f) of the Central Excise Act, 1944 so as to justify retention of CENVAT credit and negate recovery of differential duty where concessional duty was applied. ISSUE-WISE DETAILED ANALYSIS - Packaging Charges (Issue 1) Legal framework: Assessable value principles require inclusion of costs that form part of the value of goods for central excise purposes unless legitimately shown to be separate non-assessable services (e.g., bona fide outward freight supported by evidence). Burden lies on assessee to substantiate claimed exclusions. Interpretation and reasoning: The adjudicating authority examined invoices and the appellant's claim that the amount represented transport charges. No supporting transport receipts were produced before the authorities or this Tribunal. Absent documentary evidence, the claimed exclusion could not be accepted. Precedent treatment: The decision follows the established administrative approach that documentary proof is necessary to exclude charges from assessable value; no contrary precedent was applied or distinguished in the record. Ratio vs. Obiter: Ratio - where claim for exclusion of packaging/transport charges is unsupported by transport receipts or corroborative evidence, such charges form part of assessable value and are liable to duty. Conclusion: Demand for duty on packaging charges of Rs. 24,586/- is confirmed for failure to substantiate the claim that they were bona fide transport charges. ISSUE-WISE DETAILED ANALYSIS - CENVAT Credit on Rejected/Returned Goods (Issue 2) Legal framework: CENVAT credit provisions require maintenance of prescribed records (Rule 16, CER 2002) evidencing receipt, processes carried out, and disposal of inputs/inputs contained in goods; improper records can justify disallowance/reversal of credit. Interpretation and reasoning: The appellant failed to produce proper accounts or documentary evidence demonstrating receipt and disposal of rejected/returned goods or the processes undertaken. The Tribunal relied on the absence of required records to sustain the demand. Precedent treatment: The approach aligns with statutory compliance requirements; no authority was invoked to justify retention of credit in face of missing records. Ratio vs. Obiter: Ratio - failure to maintain/produce records mandated by Rule 16 enables confirmation of demand and reversal/disallowance of CENVAT credit claimed on inputs relating to rejected/returned goods. Conclusion: Demand for recovery of CENVAT credit of Rs. 44,469/- is confirmed due to non-maintenance/non-production of Rule 16 records evidencing receipt, processing and disposal. ISSUE-WISE DETAILED ANALYSIS - Whether Processes Constitute 'Manufacture' (Issue 3) Legal framework: The test for 'manufacture' under Section 2(f) of the Central Excise Act, 1944 examines whether a process results in a new product having different name, character or use. Where processes alter characteristics qualitatively or functionally, they may amount to manufacture; consequence for CENVAT credit is that inputs used in manufacture are eligible and need not be reversed if final product duty has been accepted. Interpretation and reasoning: The processes in issue included foil washing, application of nitrocellulose, and slitting into sizes. The Tribunal found these to be more than mere cutting/slitting; they involve treatment that changes the article's character/use and therefore satisfy the statutory definition of manufacture. Additionally, the manufacturer had discharged duty on the finished goods, indicating acceptance of the products as assessable finished goods. Precedent treatment: The Tribunal relied on and followed the principle established in multiple decisions and higher court rulings that where duty on final products has been accepted/paid, reversal of CENVAT credit may not be required even if an activity could be questioned as not amounting to manufacture. The judgment cited an authoritative line of decisions holding that acceptance of duty on final products by the department precludes recovery of CENVAT credit on inputs used in such products. That line was applied rather than distinguished or overruled. Ratio vs. Obiter: Ratio - where processes applied materially alter the product (satisfying Section 2(f)) and duty on the final product has been paid/accepted by the department, recovery of CENVAT credit as if no manufacture occurred is not warranted; CENVAT credit need not be reversed on that ground. Conclusions: The demand for differential duty of Rs. 2,30,887/-, raised on the ground that the appellant's processes did not amount to manufacture and hence CENVAT credit was wrongly availed, is set aside. The Tribunal held the processes to constitute manufacture and noted the prior discharge of duty on finished goods, applying the cited principles negating reversal of credit. INTER-RELATIONS AND OVERALL DISPOSITION Cross-reference: Issues 2 and 3 are related to CENVAT credit principles but are analytically distinct - Issue 2 turns on non-compliance with Rule 16 record-keeping leading to disallowance, while Issue 3 turns on substantive characterisation of processes as manufacture and the effect of duty having been paid on final products. Final disposition: Demands confirmed - packaging charges (Issue 1) and CENVAT credit on rejected/returned goods due to record deficiency (Issue 2). Demand set aside - differential duty/demand premised on non-manufacture (Issue 3) because processes satisfy the statutory test for manufacture and duty on finished goods was accepted.