CENVAT credit allowed despite revenue's claim that no manufacturing process occurred between units

CESTAT Chennai allowed appellant's appeal against denial of CENVAT credit. Revenue alleged no manufacturing process occurred on goods received from Unit-I and cleared to Unit-II, making credit ineligible. CESTAT held that when duty was collected on finished products cleared from Unit-II, input credit cannot be denied merely alleging activity doesn't constitute manufacture. Following Bombay HC precedent in Ajinkya Enterprises and CESTAT Mumbai decision in R K Packaging, tribunal ruled CENVAT credit need not be reversed even if activity doesn't amount to manufacture. Demand set aside, impugned order reversed.

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Issues Involved:
1. Eligibility of CENVAT credit on goods received from Unit I.
2. Allegation of non-manufacturing activities by the appellant.
3. Invocation of extended period under Section 11A of the Central Excise Act, 1944.
4. Payment of duty and its acceptance by the department.

Summary:

Eligibility of CENVAT Credit on Goods Received from Unit I:
The appellant, holding Central Excise Registration, procured goods from other vendors and Unit I, repacked them, and affixed MRP before clearance. However, goods from Unit I were cleared as such without any further processing. The department contended that the goods received from Unit I did not qualify as "input" since they did not undergo any manufacturing activities like packing, repacking, or labeling, making the appellant ineligible for CENVAT credit on these goods.

Allegation of Non-Manufacturing Activities:
The department argued that the goods from Unit I were already marketable and did not undergo any process that would confer marketability attributes as per Section 2(f)(iii) of the Central Excise Act, 1944. Hence, the appellant was not eligible to avail CENVAT credit on these goods. The appellant countered that they had paid duty on all clearances, and the department had accepted these payments, thus making them eligible for the credit.

Invocation of Extended Period Under Section 11A:
The department alleged that the appellant suppressed facts regarding the logistics purpose of goods received from Unit I, invoking the extended period under Section 11A/11A(5) of the Central Excise Act, 1944. The appellant argued that there was no intention to evade duty as they had paid the duty and disclosed all details in the ER I returns.

Payment of Duty and Its Acceptance by the Department:
The appellant contended that every piece of clutch cleared from Unit II was duly assessed and cleared on payment of duty, which was accepted by the department without demur. The self-assessed duty was accepted, and the assessment was not set aside by any legal process. The appellant relied on various judicial decisions, including Ajinkya Enterprises and Creative Enterprises, arguing that once the duty on final products is accepted, the CENVAT credit availed need not be reversed even if the activity does not amount to manufacture.

Conclusion:
The Tribunal, after considering the facts, evidence, and following judicial precedents, concluded that the demand raised by the department could not sustain. The impugned order was set aside, and the appeal was allowed with consequential reliefs, if any.

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