2026 (2) TMI 8 - AT - Central Excise

Cenvat credit admissibility for imported goods and manufacture by blending upheld; extended limitation and penalties set aside.

Classification of mixing/blending propane or butane as manufacture is upheld, and that finding results in confirmation of manufacturing activity. On ... CENVAT credit admissibility - Manufacture by mixing/blending - Bill of Entry as duty-paying document - Suppression of facts - Bonafide payment and revenue neutrality - extended period of limitation - penalty - HELD THAT:- As regards confirming the demand by invoking extended period of limitation, we find that there was neither suppression of facts nor any willful misstatement by appellant to warrant invocation of the extended period of limitation. All activities were undertaken in full transparency and were within the knowledge of the Department. All three departments, Customs, Central Excise and Service Tax Authorities were well aware of the activities of the appellant from the year 2002. As regards the activity, the finding that the activity of mixing/blending of propane or butane undertaken by appellant amounts to manufacture is upheld. However, with regard to cenvat credit of Rs.14,33,19,851/- which was availed and utilized by the appellant during the course of investigation, we find that as per Rule 9 of CENVAT Credit Rules, 2004, CENVAT credit can be availed on the basis of prescribed documents issued by the supplier of goods or service providers, as well as other specified duty-paying documents. The said Rule, under clause (c), specifically recognizes a Bill of Entry as one of the valid documents for availing CENVAT credit, falling within the ambit of “Documents and Accounts” contemplated therein. Following the ratio of the judgment in the matter of Union of India Vs. M/s. Marmagoa Steel Ltd. [2008 (7) TMI 95 - SUPREME COURT] and following decision in the matter of M/s. Hindustan Zinc Ltd. [2012 (12) TMI 462 - CESTAT, NEW DELHI] CENVAT credit cannot be denied for imported goods once duty is paid and goods are received, even if technical deficiencies exist in the Bill of Entry. Rule 11(2) of the Central Excise Rules, 2002, governing domestic goods, is inapplicable to imports, and credit is available even to a borrower of goods. Thus, the period of limitation computed is unsustainable. Bill of Entry is filed by the importer under Section 46 of the Customs Act, 1962 became evidence of duty only upon assessment under Section 47. It is not equivalent to an invoice or duty paying document issued by a manufacturer under Rule 9(1) of CENVAT Credit Rules, 2004. Limitation provisions aim to prevent misuse, not to penalize genuine duty-paid receipts. Accordingly, Appeal filed by M/s. Hindustan Petroleum Corporation Ltd., is partially allowed by confirming the activity as manufacturing and by confirming the demand for the normal period. The demand alleging ineligible cenvat credit against appellant M/s. Hindustan Petroleum Corporation Ltd., is dropped since the credit is held as eligible. Further, penalties imposed under section 11AC of Central Excise Act. 1944 / Rule 26 of Central Excise Rules, 2002 on Co-appellants in Appeal Nos. E/20160/2019, E/20161/2019 and E/20162/2019 are liable to be set aside and they are set aside. Issues: (i) Whether mixing/blending of Propane and Butane amounts to manufacture; (ii) Whether the Appellant is liable to pay Central Excise duty as confirmed by the adjudication authority; (iii) Whether CENVAT credit availed and utilized during investigation was ineligible and the confirmation of demand is tenable.Issue (i): Whether mixing/blending of Propane and Butane undertaken by the assessee amounts to manufacture.Analysis: The blending operation using the installed static mixer converted imported propane and butane into LPG which was subsequently cleared. The activity was examined against the statutory and factual matrix governing excise characterization of processes that result in a new excisable product. The Tribunal applied the legal tests for manufacture by transformation as reflected in the adjudicatory findings and concluded that the blending produced LPG for clearance.Conclusion: The activity of mixing/blending of Propane and Butane is held to amount to manufacture (against the assessee on this issue).Issue (ii): Whether the adjudicated demand for Central Excise duty is sustainable.Analysis: The demand was examined for the applicable period and for invocation of extended limitation. Consideration was given to prior levy and acceptance of service tax for the warehousing/storage activity, departmental knowledge of operations, and whether there was suppression or willful misstatement to justify extended limitation. The Tribunal applied authority on bona fide payment of service tax, and limitation principles, and distinguished ordinary and extended periods under the statute.Conclusion: Demand is confirmed only for the normal period; invocation of the extended period of limitation was not sustainable and cannot be invoked against the assessee.Issue (iii): Whether CENVAT credit of countervailing duty and other credits availed and utilized during investigation was ineligible and the confirmation of demand in respect thereof is tenable.Analysis: The Tribunal analysed Rule 9 of the CENVAT Credit Rules, 2004, and authorities treating a bill of entry as a valid duty-paying document for imported inputs. Following precedent that credit on imported goods cannot be denied where duty was paid and goods received, the Tribunal addressed technical deficiencies and limitation, and applied the principle that credit must be re-determined when duty is re-determined.Conclusion: The CENVAT credit availed and utilized amounting to the specified sum is held eligible and the demand relating to alleged ineligible credit is dropped (in favour of the assessee on this issue).Final Conclusion: The appeals result in a mixed outcome: the characterization of the blending activity as manufacture is upheld, but the excise demand is limited to the normal period and the confirmed recovery of CENVAT credit is disallowed; penalties set aside where imposed on co-appellants.Ratio Decidendi: Where imported inputs have duty paid and are evidenced by a bill of entry or other documents recognized by Rule 9(1) of the CENVAT Credit Rules, 2004, credit cannot be denied on technical deficiencies or limited by extension of limitation absent suppression or willful misstatement; credit must be re-determined consistent with any re-determination of duty.