2018 (3) TMI 604

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.... not paying duty since they were availing exemption under Notification No.6/2002-CE as amended. The appellants were thus clearing traction equipment both on payment of Excise Duty as well as by availing exemption. Since they were availing cenvat credit on common inputs used in the manufacture of both dutiable and exempted final products, they paid an amount equal to 8% upto 09.09.2004 and thereafter @ 10% on the value of exempted goods as prescribed under Rule 6 (3) (b) of Cenvat Credit Rules 2002/2004. 2. During the course of audit of accounts of the unit, it appeared that appellants had purchased certain goods, namely ' Traction Motor' and 'Vacuum Circuit Breakers' (VCB) from their group units at Kolkatta and Naini, Allahabad, for which they availed cenvat credit @ 16% ad valorem. Subsequently, they sold the said goods 'as such' to M/s.Mitsubishi Corporation, New Delhi without payment of duty by availing exemption under Notification No.29/2003-CE, as amended, but only paid an amount equal to 8% till 09.09.04 and thereafter @ 10% of the price of the said goods cleared in terms of Rule 6 (3) (b) of Cenvat Credit Rules, 2002/ 2004. 3. It appeared that a....

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.... The adjudicating authority held that process of quality attesting and inspection undertaking in the factory cannot be termed as "manufacturing activity" in terms of Section 2(f) of the Central Excise Act, 1944; that the clearance made by the assessee to M/s.Mitsubishi Corporation in respect of 166 nos. of traction motors and 52 nos. of vacuum circuit breakers are not 'manufactured products' but are only clearances 'as such' and that the goods namely, traction motors and vacuum circuit breakers cleared from factory are only inputs and not final products. Accordingly, adjudicating authority confirmed the demand amount of Rs. 1,88,42,922/- with interest liability thereon and also imposed equal penalty under Rule 13 of the Cenvat Credit Rules, 2002 and Rule 15 of CCR 2004 read with Section 11AC of the Central Excise Act, 1944. Aggrieved, appellants have filed this appeal. 5. On 21.11.2017, when the matter came up for hearing, on behalf of the appellant, Ld. Advocate, Shri RaghavanRamabhadran made oral and written submissions which can be broadly summarised as under : i) Traction motors and vacuum circuit breakers are part and parcel of traction equipment suppl....

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.... vi) Even assuming that the contention of the order that the present activity does not amount to manufacture is correct and that the Appellant is only buying and selling goods as such, it is submitted that the said activity is a trading activity for which Rule 6 obligations have already been discharged. vii) Therefore, assuming that the appellant merely sells the bought out goods as such without carrying on any process on the same, even then it amounts to trading for which the attributable credit has been reversed in terms of Rule 6(3) which is an undisputed fact. Thus, in any case even if the activity does not amount to manufacture the amount of credit reversed would suffice and no further amount is payable. viii) The entire demand is time barred. In this case, the demand pertains to the period 11/2003 to 3/2005 and the SCN is dated 29.08.2008. ix) The demand has been made for Rs. 1,88,42,922 with equal penalty. The imposition of equal penalty is incorrect because it has been issued without considering Rule 6 amount of Rs. 1,62,61,504/- already paid at the time of clearance itself. Thus, in any case, the imposition of penalty of Rs. 1,88,42,922/- is incorrect. 6.1 On....

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....ate to a communication by the appellant to the Superintendent of Central Excise, Coimbatore vide their letter dt.3.3.2005 conveying the details of their inspection and testing procedures for the impugned items. For the Traction Motors, the tests listed out by them are as follows : 1. Routine Test (including Visual inspection and Measurement of each dimension) 2. Dielectric test to verify function and scaling of instrumentation etc. 3. Characteristics test (carried out load test in accordance with electrical input conditions) In the case of Vacuum Circuit Breaker, the tests listed out are (1) Visual test (2) Insulation Resistant test (3) Dielectric Withstand test. In an internal letter dt.15.04.2004 of the appellants found in page 96 of the paper book, Vol-I, it is informed to all their departments that certain activities carried out on Tractor Motor and Vacuum Circuit Breaker at appellant's unit due to non-availability of the facilities with the respectively suppliers, are no longer required to be done, hence the said activities shall not be continued w.e.f. December 2004. We are not able to appreciate how these processes claimed to have been carried out by the appe....

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....f Central Excise Tariff Act, 1985. In the present case, the tests carried out after receiving the input goods in their factory are Di-electric test, characteristics test, Routine test, etc. to find out the marketable quality of the product and see whether the item can function with the original equipment, i.e., Traction Equipment. Here, the assessee are merely testing the goods to see whether the products received by them meet the required standard. The above items do not undergo any further engineering activity to bring about any change in their works at Coimbatore. Further, their reference to Note 6 of Section XVI of Central Excise Tariff Act is also not relevant in this case. This note states that conversion of incomplete or unfinished goods into complete or finished goods amounts to manufacture. In the instant case, the goods namely Traction motors and Vacuum Circuit Breaker are received from their sister units as fully finished goods and not as incomplete goods which require any further activity to complete their manufacture. As explained already, the process undertaken is only to check the standard or quality of goods which is normal before any goods are sent out of the facto....

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....cess of manufacture. Here, the credit availed inputs without undergoing any manufacturing activity was cleared as such from the factory. As it is not a final product, Rule 6(3)(b) of Cenvat Credit Rules, 2004 cannot be applied to this situation. The appropriate Rule to be applied in situations where credit availed inputs are cleared without attempting any manufacture is Rule 3(4) / 3(5) of Cenvat Credit Rules, 2002/2004 and the provisions of this Rule was not complied with in this case. Since the assessee has not paid an amount equivalent to the cenvat credit availed on the goods at the time of clearance from the factory, applying the provision of Rule 3(4) / 3(5) of Cenvat Credit Rules, 2002/2004, the proposal in the show cause notice to demand an amount equal to ineligible credit available in the cenvat credit account is very much sustainable as per law." 8. We also note that the adjudicating authority has allowed set off of amount of Rs. 1,62,61,504/- already paid up the appellants and has demanded only the remaining amount of Rs. 25,81,418/- in para 28 (ii) of the impugned order. We do not find any infirmity with this decision and uphold the same. 9. Coming to the matter ....