2025 (4) TMI 1532 - AT - Central Excise

HDPE/PP Manufacturer Wins CENVAT Credit Dispute, Affirming Input Tax Rights Under Rule 2(a) Manufacturing Definition

The SC/Tribunal addressed CENVAT Credit eligibility for a manufacturer of HDPE/PP woven fabrics. The court ruled that credit cannot be denied if finished ... Irregular availment of CENVAT Credit - denial of credit on the ground that the process undertaken does not amount to manufacture - HELD THAT:- he appellant has been availing CENVAT Credit of duty paid on inputs viz. PP/HDPE/LLDPE Granules, Calcium Compound, Master Batch and PP/HDPE & Woven Fabrics. The said inputs were used in the manufacture of their final products. The appellant was clearing their finished goods on payment of duty and was submitting their Returns regularly. The Department has not raised any dispute against availment of credit by the appellant. It is also observed that when the appellant paid duty on the finished goods, the Department has accepted the same. If the finished products attract duty, then the CENVAT Credit availed on the inputs used in the manufacture of the said finished goods cannot be denied, even if the process does not amount to manufacture. Reliance placed in the case of Commissioner of C.Ex. & Cus., Surat-III v. M/s. Creative Enterprises [2008 (7) TMI 311 - GUJARAT HIGH COURT]. In this case, initially, the Tribunal had granted the benefit of MODVAT Credit despite the final product not being dutiable as the activity did not amount to manufacture. The CENVAT Credit availed by the appellant on the said inputs cannot be denied on the allegation that the process undertaken by the appellant did not amount to manufacture and no new product emerged - the demands confirmed in the impugned order are not sustainable - Appeal allowed. 1. ISSUES PRESENTED and CONSIDERED- Whether the process undertaken by the appellant amounts to manufacture under the Central Excise law, thereby entitling them to avail CENVAT Credit on inputs used.- Whether the denial of CENVAT Credit on the grounds that no new product emerged from the process is legally sustainable.- Whether the demand of duty, interest, and penalty confirmed by the Commissioner on the alleged irregular availment of CENVAT Credit is justified.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the process undertaken by the appellant amounts to manufacture under the Central Excise law, entitling them to CENVAT Credit on inputs used.Relevant legal framework and precedents: The Central Excise Tariff Act, 1985 governs classification and levy of excise duty on manufactured goods. CENVAT Credit rules allow manufacturers to avail credit on inputs used in manufacture of dutiable goods. The key question is whether the process qualifies as 'manufacture' so as to attract excise duty and enable credit.Precedents relied upon by the appellant include:Commissioner of C.Ex. & Cus., Surat-III v. M/s. Creative Enterprises (2009): The Tribunal allowed MODVAT Credit despite the final product not resulting from a manufacturing process. The Gujarat High Court upheld this view, and the Supreme Court dismissed the Department's appeal.Commissioner of C.Ex., Pune-III v. M/s. Ajinkya Enterprises (2013): The Bombay High Court followed the same principle as in Creative Enterprises.M/s. Perfo Chem (I) Pvt. Ltd. v. Commissioner of C.Ex., Belapur (2015): The Tribunal reiterated the principle that credit cannot be denied merely because the process does not amount to manufacture if the final product is dutiable.Court's interpretation and reasoning: The Tribunal observed that the appellant was engaged in manufacturing HDPE/PP woven fabrics and sacks, paying duty on finished goods, and regularly submitting returns. The Department had not disputed the credit availment until the show cause notice. The appellant's process involved laminating purchased PP woven fabrics using LLDPE/PP granules and sometimes further converting laminated sheets into sacks.The Tribunal emphasized that since the finished goods attract excise duty and the appellant paid duty on them, denial of CENVAT Credit on inputs used in manufacture cannot be sustained. It relied on the binding precedent of Creative Enterprises, where the Supreme Court confirmed that credit cannot be denied on the ground that the process does not amount to manufacture or no new product emerges, provided the final product is dutiable.Key evidence and findings: The appellant's records, payment of duty on finished goods, and acceptance of such duty payment by the Department were critical. The Director's statement confirmed the nature of the process and products involved. No prior dispute was raised on credit availment before the show cause notice.Application of law to facts: The Tribunal applied the legal principle that CENVAT Credit is admissible if the inputs are used in manufacture of dutiable goods, regardless of whether the process amounts to manufacture under a strict interpretation. Since the appellant paid duty on finished goods classified under relevant tariff headings, credit denial was unjustified.Treatment of competing arguments: The Department argued that the process did not amount to manufacture and no new product emerged, hence credit was irregular. The Tribunal rejected this contention, holding that the legal position established by higher courts overrides this argument.Conclusion: The process undertaken by the appellant qualifies for credit entitlement since the finished goods attract duty and duty was paid. The denial of credit on the ground of non-manufacture is unsustainable.Issue 2: Whether the demand of duty, interest, and penalty confirmed by the Commissioner on the alleged irregular availment of CENVAT Credit is justified.Relevant legal framework: Under the Central Excise Act, 1944, irregular availment of credit can attract demand of duty, interest under section 11AB, and penalty under section 11AC.Court's interpretation and reasoning: Since the Tribunal held that the credit availment was legitimate, the demand of duty itself is not sustainable. Consequently, the imposition of interest and penalty, which are contingent on the confirmed demand, cannot stand.Key evidence and findings: The appellant's payment of duty on finished goods and acceptance by the Department negated the basis for any demand.Application of law to facts: The Tribunal applied the principle that if the foundational demand is invalid, ancillary charges like interest and penalty cannot be imposed.Treatment of competing arguments: The Department maintained the demand and penalty but failed to counter the binding precedents and the appellant's evidence effectively.Conclusion: The demand of duty, interest, and penalty is set aside as unsustainable in law and fact.3. SIGNIFICANT HOLDINGS'If the finished products attract duty, then the CENVAT Credit availed on the inputs used in the manufacture of the said finished goods cannot be denied, even if the process does not amount to manufacture.''Following the ratio of the decision cited above, we hold that the CENVAT Credit availed by the appellant on the said inputs cannot be denied on the allegation that the process undertaken by the appellant did not amount to manufacture and no new product emerged.''Since the demand of duty is not sustainable, the question of demanding interest and imposing penalty does not arise.'The Tribunal conclusively determined that the appellant's credit availment was lawful and that the impugned order confirming duty demand, interest, and penalty was liable to be set aside.