Revenue loses appeal as CENVAT credit allowed on clutches despite manufacturing process dispute under Section 2(f)(iii)

CESTAT Chennai dismissed Revenue's appeal challenging CENVAT credit eligibility on clutches. The assessee engaged in packing/re-packing/labelling/re-labelling/affixing MRP on automobile clutches, which constituted manufacture under Section 2(f)(iii) of Central Excise Act, 1944. Revenue contended goods procured from Unit 1 during April-May 2012 weren't subjected to manufacturing processes, making CENVAT credit of Rs.1,70,46,634 ineligible. Tribunal relied on identical facts in earlier case involving same appellant, holding when department collected duty on finished products, input credit cannot be denied alleging activity doesn't amount to manufacture. Commissioner's order was set aside and appeal allowed.

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Issues Involved:
1. Non-compliance with the pre-deposit requirement under Section 35F of the Central Excise Act, 1944.
2. Eligibility to avail CENVAT credit on goods without a manufacturing process.
3. Treatment of duty paid on goods cleared as such when no manufacturing activity is involved.

Issue-wise Detailed Analysis:

1. Non-compliance with the Pre-deposit Requirement:

The appeal was initially dismissed by the Commissioner of GST and Central Excise (Appeals), Coimbatore, for non-compliance with the pre-deposit requirement as mandated by Section 35F of the Central Excise Act, 1944. The Tribunal reiterated that the statutory provision requires a pre-deposit to entertain an appeal, as clarified in the Tribunal's decision in AI Champdany Industries Ltd. vs. Commissioner of Central Excise, Kolkata. However, the Appellant argued that the amount of Rs.1,36,92,914/- already paid should be treated as a pre-deposit since it was utilized for duty payment on the same goods for which credit was denied. The Tribunal acknowledged the payment of Rs.20,40,036/- as the pre-deposit, allowing the appeal to be admitted for decision.

2. Eligibility to Avail CENVAT Credit:

The core issue was whether the Appellant could avail CENVAT credit on clutches received from Unit 1 when no manufacturing process was undertaken. The Revenue contended that the activities performed did not amount to manufacture as defined under Section 2(f)(iii) of the Central Excise Act, 1944, and thus, the credit of Rs.1,70,46,634/- was ineligible. The Appellant argued that even if no manufacturing took place, the duty paid on inputs should be treated as reversed under Rule 3(5) of the CENVAT Credit Rules, 2004, as they cleared the goods on payment of duty.

3. Treatment of Duty Paid on Goods Cleared as Such:

The Tribunal considered the Appellant's reliance on various judicial precedents, including Neel Kamal Polytex Industries and Ajinkya Enterprises, which held that when the department accepts duty on finished products, the credit availed on inputs need not be reversed, even if the activity does not constitute manufacture. The Tribunal noted that for the earlier period, a similar issue was decided in favor of the Appellant, wherein the demand was set aside on the grounds that duty paid on finished products suffices for credit reversal.

Conclusion:

The Tribunal concluded that the impugned Order-in-Appeal No. 71/2017 dated 30.11.2017 could not be sustained, as the facts and legal precedents favored the Appellant. The appeal was allowed, setting aside the demand and granting consequential relief as per the law. The Tribunal emphasized that once duty on the finished products is collected, the credit availed on inputs cannot be denied, aligning with established judicial interpretations.

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