2025 (10) TMI 610 - AT - Central Excise

Conversion of laminated/metallised material into packaging is manufacture; claimable under Notification No.56/2002-CE, CENVAT credits allowed

M/s First Flexipack Corporation, M/s Ultra Laminates Pvt Ltd., M/s Montage Enterprises Pvt Ltd Versus Commissioner of CE and CGST, Jammu

CESTAT Chandigarh (AT) allowed the appeal, holding that the conversion of laminated/metallised material into packaging amounted to manufacture and that ... Process amounting to manufacture - Manufacture of packaging material with brand name of the customer - processes undertaken by the appellants to make Plastic Laminates falling under Chapter Sub-heading No. 3920.37, 3920.38 and 3920.32 of the First Schedule to the Central Excise Tariff Act, 1985 - availing the benefit of N/N. 56/2002-CE dated 14-11-2002 - Revenue can take a different view having accepted the Commissioner (Appeals) order or not - wrongly availed self -Credit in terms of the N/N. 56/2002-CE dated 14-11-2002, without a challenge to the assessment orders - eligibility to take CENVAT Credit - availing self-credit on goods, retuned by Customers, which were re-made and cleared on payment of duty again. Whether the processes undertaken by the appellants to make Plastic Laminates falling under Chapter Sub-heading No. 3920.37, 3920.38 and 3920.32 of the First Schedule to the Central Excise Tariff Act, 1985, amount to manufacture? - HELD THAT:- The authorities find that the appellants are engaged in lamination and slitting/cutting only; both these processes do not amount to manufacture; as per M/s Metlex (India) (P) Ltd [2004 (2) TMI 387 - SUPREME COURT] and the clarification, dated 11.09.2007, issued by CBEC, lamination does not amount to manufacture and as per S.R. Foils Ltd [2001 (5) TMI 662 - CEGAT, NEW DELHI] slitting/cutting jumbo rolls of aluminum foil into smaller rolls followed by rewinding on card board core and repacking does not amount to manufacture. It is found that the impugned orders did not analyse the processes undertaken by the appellants therein in the case of M/s Meltex (India) (P) Ltd and have not made any attempts to compare the same with the processes involved in the impugned cases - the processes undertaken by the appellants in converting laminated/ metallised laminates in to packaging material, amounts to manufacture. Whether the appellants were correct in availing the benefit of N/N. 56/2002-CE dated 14-11-2002? - HELD THAT:- The only objection by Revenue was that the processes undertaken by the appellants did not amount to manufacture. No other case has been made out regarding the eligibility. As the only reason, for denial of the benefit of the Notification, is set to rest in favour of the appellants, it is found that there was no infirmity in the availment of the benefit of N/N. 56/2002 by the appellants. Thus, the question raised are answered in the affirmative in favour of the appellants. Whether the Revenue can take a different view having accepted the Commissioner (Appeals) order dated 22.06.2018, passed in favour of the appellants? - HELD THAT:- The Appellants argue that as the order dated 22-062018, passed by the Learned Commissioner (Appeals) has been accepted by the department, Revenue can not take a different stand in the present proceedings. Learned Special Counsel for the Revenue submits that the said order has been accepted on monetary grounds and not on merit and hence, it has no precedent value. Learned Special Counsel submits that the principles of Res Judicata and Estoppel do not apply to taxation matters. It is not the case of the department that the stand taken earlier is being revised due to certain changes. It is not open for the department to change the stand after they have accepted the decision of the Commissioner (Appeals) for the same period in respect of one of the appellants and the decision of the Tribunal in cases of Markwell Paper Plast Pvt Ltd, M/s. Sheetal Mercantile (P) Ltd [2013 (10) TMI 1252 - DELHI HIGH COURT] and M/s Chawla Packaging with identical facts. The principle of Res Judicata and Estoppel would apply if a decision is changed for the future, but not certainly for the past period having accepted a contrary stand in the interregnum. Changing the stand off and on would result in avoidable confusion and chaos in the field of taxation. In the instant case it is not only an order of the Commissioner (Appeals) in the case of the appellants themselves and decision of two coordinate Benches of the Tribunal in identical case. All the decisions were accepted by department. For these reasons too, the department is bound by the above decisions and this Bench needs to follow the same. Thus, the question answered in the negative. Whether the department ignored the directions given by the Hon’ble J& K High Court while disposing the Writ Petitions filed by the appellants? - HELD THAT:- As the circular was issued on the basis of the Hon’ble Supreme Court’s decision in the case of Metlex [2004 (2) TMI 387 - SUPREME COURT], Hon’ble High Court appears to have indicated that the circular and the thus, the decision in the case of Metlex, per se have no applicability to the facts of the cases before them. It is found that in spite of the direction of the Hon’ble High Court, the adjudicating authority failed to appreciate the facts of the impugned cases in a just and fair way as an independent adjudicator, it appears that the Authority was predetermined to follow the circular rather than the high Court’s order. Thus, it is agreed with the submissions of the counsel for the appellants and the question answered in the affirmative. Whether Revenue could have issued Show Cause Notices to recover the allegedly wrongly availed self -Credit in terms of the notification No. 56/2002-CE dated 14-11-2002, without a challenge to the assessment orders? - HELD THAT:- It is found that Section 2A(g) of the Notification provides that the amount of the credit availed irregularly or availed of in excess of the amount determined correctly refundable under clause (e) and not reversed by the manufacturer within the period specified in that clause, shall be recoverable as if it is a recovery of duty of excise erroneously refunded. There is no record put forth by the revenue if any notice was given to the appellants to repay the same. The only occasion the Assistant Commissioner passed an order rejecting the refund was set aside by the Commissioner (Appeals) for a period of one month. Therefore, for the entire impugned period the refund availed by the appellants remains unchallenged. Though, erroneously refunded amounts can be recovered in terms of Section 11A, no authority has held that the refunds availed are erroneous, on a challenge to the order of assessment or self-assessment, as the case may be. It is not open to the department to proceed with recovery of the so called’ erroneous refund’ unless the order of assessment or self-assessment as the case may be is appealed against under the provisions of Section 35 of Central Excise Act,1944, provisions of Section 11 cannot be invoked. That is to say unless a competent authority terms the refund granted or taken on their own as ‘erroneous refund’, department cannot proceed to recover the same under the provisions of Section 11A ibid. It is found that the rebuttal submitted by the Special Counsel for the Revenue that the appellant has not raised this issue in their written submissions or before the adjudicating authority is not acceptable. The point being related to the interpretation of Law, can be raised by the appellants at any point of time during the proceedings. Thus, the question is answered in the negative. Whether the appellants are eligible to take CENVAT Credit? - Whether M/s MEPL were right in availing self-credit on goods, retuned by Customers, which were re-made and cleared on payment of duty again? - HELD THAT:- The appellants are eligible to avail CENVAT Credit and the denial of the same is not maintainable. This Bench in the case of Gravitas Metals [2017 (10) TMI 1181 - CESTAT CHANDIGARH], while dealing with same notification No. 56/2002-CE dated 14-11-2002, decided the issue in favour of the appellants. It is found that the revenue’s therein was that the appellant therein was not entitled for the benefit of notification No. 56/2002-CE on the ground that the process of making refined lead ingots and lead alloys, did not amount to manufacture. The Bench, relying on the judgement of the Bombay High Court in the case of Ajinkya Enterprises [2012 (7) TMI 141 - BOMBAY HIGH COURT], held that in case of activity does not amount to manufacture, the payment of duty shall amount of reversal of CENVAT credit. It is found that Commissioner had allowed the CENVAT credit to the party which has been upheld by the Tribunal. Thus, the questions are answered in the affirmative. All the issues raised are answered in favour of the appellants - the impugned orders are not sustainable - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the processes undertaken to produce printed/metallised laminated plastic rolls (including printing, multi-layer lamination, hot-room bonding, slitting/cutting and packing) amount to 'manufacture' within the meaning of Section 2(f) of the Central Excise Act. 2. Whether the appellants were eligible to avail the exemption/self-refund mechanism under Notification No. 56/2002-CE (and related amendments) for the goods cleared as finished packaging material. 3. Whether Revenue was precluded from taking a contrary stand after having accepted an appellate order in favour of the assessee and after coordinated Tribunal/High Court decisions on identical facts (application of estoppel/res judicata or principle of consistency in taxation). 4. Whether the adjudicating authority ignored or failed to follow directions of the High Court given while disposing writ petitions (i.e., to decide SCNs on merits without being influenced by the Board circular advising reliance on the Supreme Court decision). 5. Whether Revenue could recover allegedly irregular self-credits/refunds under Section 11A/Notification provisions without having first challenged the underlying assessments or refund orders (i.e., scope of recovery of 'erroneous refund'). 6. Whether appellants validly availed and utilized CENVAT credit (including self-credit on returned goods remade and re-cleared) and whether penalties/interest imposed were sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether processes constitute 'manufacture' Legal framework: Definition of 'manufacture' under Section 2(f) (to include any process incidental or ancillary to completion of a manufactured product). Tariff/Note provisions to Chapter 39 (amendments deeming metallization/lamination to be manufacture in some contexts) and statutory interpretation principles that onus to prove manufacture rests on Revenue where relevant. Precedent treatment: A Supreme Court decision holds that lamination/metallisation of duty-paid film, leaving it essentially a film, did not constitute manufacture where no new distinct product was shown to emerge; several Tribunal benches and subsequent High Court decisions, however, have distinguished that precedent and held on their facts that printing + multi-layer lamination + bonding + slitting produced a commercially new packaging material (and thus amounted to manufacture). Co-ordinate Tribunal decisions were upheld by multiple High Courts, and those decisions were accepted by Revenue in certain matters. Interpretation and reasoning: The Tribunal examined the actual processes (printing on bare/metallised film, lamination of two or more layers with adhesives, hot-room bonding, conversion into jumbo rolls specific to customer branding, and subsequent slitting/cutting) and found that these processes change user, thickness, character and use - producing packaging rolls tailored to particular customers, not generic film. Because Section 2(f) encompasses processes incidental or ancillary to completion of a manufactured product, the multi-step activity here results in a new distinct commercial product (packaging material) rather than merely altering a film. The Tribunal applied the principle that ratio of higher-court precedents depends on factual matrix; a single additional/different fact may alter applicability of a precedent, and thus the Supreme Court ruling that mere lamination does not amount to manufacture was held inapplicable on the distinct facts before the Tribunal. Ratio vs. Obiter: Ratio-on these facts, multi-layer printed lamination with bonding and conversion into customer-specific packaging constitutes manufacture. Obiter-noting that mere lamination in a case where no new product emerges remains non-manufacture as per the Supreme Court precedent. Conclusion: Processes in question amount to manufacture; therefore the findings denying manufacture were reversed in favour of the appellants on the facts before the Tribunal. Issue 2 - Eligibility for Notification No.56/2002-CE benefit Legal framework: Notification procedure requires submission of statements, verification and allows provisional refunds with later adjustment; Notification amendment (inserting 2A(g)) treats irregular/excess credit as recoverable akin to erroneously refunded duty if not reversed within stipulated period. Precedent treatment: Where the activity is held to be manufacture and final goods are excisable, claimants who paid duty and complied with notification procedures have been held eligible for refund/self-credit; Tribunal and several High Courts have affirmed that when final product is treated as excisable and duty paid, credit/refund mechanics follow accordingly. Interpretation and reasoning: Because the Tribunal concluded the processes amount to manufacture and the final product is packaging material (excisable), the only Revenue objection to notification benefit fell away. The Notification's procedural safeguards did not preclude relief where the substantive condition (manufacture/excisability) is satisfied. The Tribunal also observed that department had accepted duty payment on finished goods in some prior proceedings, supporting eligibility. Ratio vs. Obiter: Ratio-the appellants were eligible to avail the benefit of the Notification for the impugned period, subject to procedural compliance. Obiter-remarks on the content of various Board circulars and whether they were withdrawn. Conclusion: Benefit under Notification No.56/2002-CE was properly availed; denial solely on the ground of non-manufacture was unsustainable. Issue 3 - Revenue taking a different view after having accepted earlier appellate/bench decisions (consistency, estoppel) Legal framework: General principle that res judicata/estoppel do not rigidly apply in taxation, but settled jurisprudence permits application of consistency/estoppel where Revenue has consciously accepted an adjudicatory decision on the same facts/period and no material change justifies departure (factors include change of facts, change in process, tariff alteration, or later binding higher-court pronouncement). Precedent treatment: Apex and High Court decisions recognize Revenue can change position when good reason exists; conversely, courts have applied estoppel/consistency to bar Revenue from reversing a consciously accepted position that pertains to the same period and identical facts. Interpretation and reasoning: Tribunal found none of the recognized grounds for departing from earlier accepted positions existed: facts/process remained same, tariff entries unchanged, and no intervening higher-court ruling displacing the co-ordinate Bench decisions relied upon. Department had earlier accepted Commissioner (Appeals) order and Tribunal/High Court decisions on identical facts; allowing Revenue to flip positions for the same period would cause confusion and injustice. Accordingly, Revenue was precluded from taking a contrary view for the impugned period. Ratio vs. Obiter: Ratio-where Revenue has accepted prior adjudicatory decisions on identical facts and period and no valid grounds for departure exist, it cannot take a contrary stand to recover past periods. Obiter-observations on when taxation estoppel exceptions apply. Conclusion: Revenue was not entitled to take a different position for the impugned period after acceptance of earlier favorable decisions; claims to the contrary were rejected. Issue 4 - Whether High Court directions were ignored Legal framework: High Court disposed writs with directions that show-cause replies be adjudicated on merits without being influenced by the Board circular; courts require administrative authorities to follow such directions. Precedent treatment: Administrative authorities must decide pending SCNs on merits consistent with judicial directions; failure to respect HC direction is impermissible. Interpretation and reasoning: Tribunal found the adjudicating authority failed to heed the High Court's direction to decide on merits without being influenced by the Board circular (which had directed reliance on the Supreme Court precedent). The authority's reliance on that circular and on the Supreme Court precedent, without proper fact-based adjudication, amounted to ignoring the High Court's order and the parties' right to merits adjudication. Ratio vs. Obiter: Ratio-the adjudicating authority failed to comply with High Court directions and therefore its adjudication was procedurally and substantively flawed. Obiter-comments on administrative deference to Board circulars. Conclusion: The Tribunal answered in the appellants' favour that the adjudicating authority ignored High Court directions and adjudicated improperly. Issue 5 - Recovery of allegedly erroneous refund/self-credit without challenging assessments (Section 11A/Notification) Legal framework: Section 11A permits recovery of erroneously refunded duty but jurisprudence requires challenge to underlying assessment/refund orders before invoking recovery; Notification itself provides mechanisms for provisional refund and adjustments and treats irregular/unreversed credit as recoverable only under conditions. Precedent treatment: Courts have held recovery under Section 11A is not permissible where refund/self-credit orders stand unchallenged/final; Revenue must challenge the assessment/refund order under appeal provisions before treating a refund as 'erroneous' for recovery. Interpretation and reasoning: There was no record that Revenue appealed or challenged the monthly self-assessment/refund orders for the impugned periods; only one isolated order by a subordinate authority was set aside on appeal. Absent challenge to assessments/refund orders, invoking Section 11A for recovery was impermissible. Tribunal relied on analogous High Court decisions holding that recovery cannot proceed without contesting the assessment/refund orders first. Ratio vs. Obiter: Ratio-Revenue cannot recover alleged erroneous refunds under Section 11A unless the refunds/assessments have been challenged and held erroneous; procedural challenge is prerequisite. Obiter-discussion of Notification 2A(g) mechanics. Conclusion: Recovery under Section 11A without challenging assessments/refund orders was not sustainable; the point favoured the appellants. Issue 6 - CENVAT credit, self-credit on returned/remade goods, penalties and interest Legal framework: CENVAT Credit Rules permit credit where manufacture occurs and final goods are excisable and compliance conditions are met; Rules governing return/remake (e.g., Rule 16(1) of Central Excise Rules) permit handling of returned goods; penalties under applicable Rules require culpability (fraud/wilful misstatement) and statutory limits; interest provisions attach to sustainable demands. Precedent treatment: Tribunal/High Courts have allowed CENVAT credit where manufacture/excisability established and where duty was paid on finished goods; refunds/self-credits relating to legitimately returned goods remade and re-cleared have been upheld where procedural steps were followed; penalties were set aside where no mala fide or statutory breach established. Interpretation and reasoning: Having held manufacture and excisability, Tribunal found CENVAT credit availment lawful (no other grounds for denial alleged). Self-credit on returned goods was allowable where remaking and re-clearance on payment of duty complied with rules; Revenue produced no persuasive evidence that returned goods were only repacked rather than remade. Penalties imposed under incorrect rule references or without proving intentional evasion were held unsustainable; interest would only attach to demands that are sustainable on merits. Ratio vs. Obiter: Ratio-CENVAT credits and self-credits on legitimately remade/recleared goods are allowable where conditions of Rules and Notification are satisfied; penalties and interest improperly imposed or without statutory basis are not sustainable. Obiter-remarks on typographical errors in orders not vitiating proceedings absent prejudice. Conclusion: Appellants were eligible for CENVAT credit and for refund/self-credit on legitimately remade returned goods; penalties imposed were not sustained; interest only follows if a demand validly stands on merit.