2007 (7) TMI 511 - AT - Central Excise

Summary

Issues:
1. Demand of duty of excise and penalty on unexposed photographic films
2. Classification of activity as manufacturing or trading
3. Claim of revenue neutrality and entitlement to CENVAT credit
4. Contention on the ground of limitation
5. Denial of CENVAT credit on imported items
6. Change of view by the department regarding duty imposition
7. Application of extended period of limitation
8. Comparison with the Narmada Chematur Pharmaceuticals case

Analysis:

1. The judgment deals with the demand of over Rs. 20 crores towards duty of excise and education cess, along with an equal amount of penalty, on unexposed photographic films marketed in pre-printed cartons. The department considered this activity as "manufacturing" under Section 2(f)(iii) of the Central Excise Act, leading to the demand. The appellants argued that it was a trading activity, and they believed it did not amount to manufacture. The plea of revenue neutrality was raised, stating that if the goods are dutiable, they should be entitled to CENVAT credit on inputs.

2. The appellants also contested the demand on the grounds of limitation. The duty was demanded for a period beyond the normal limitation period, but the appellants claimed that the clearance was made under a bona fide belief that it did not attract excise duty. The learned counsel highlighted the change in the department's view and issued show-cause notices to prevent any plea of limitation defeating the proposal.

3. The counsel referred to the case of Commissioner of Central Excise & Customs, Vadodara v. Narmada Chematur Pharmaceuticals Ltd., emphasizing the demand cannot be sustained due to revenue neutrality. The ambiguity in the department's stance on duty imposition or denial of CENVAT credit on imported goods supported the appellants' plea of bona fide belief and argued against the extended period of limitation invoked by the department.

4. Drawing parallels with the Narmada Chematur Pharmaceuticals case, where a demand was set aside due to available Modvat credit equaling the duty demanded, the judgment concluded that the total admissible credit would exceed the duty demanded for specific periods. Consequently, the entire demand was set aside, and the appeal was allowed, in favor of the appellants.

In conclusion, the judgment ruled in favor of the appellants, setting aside the demand of duty and penalty, emphasizing the availability of CENVAT credit exceeding the duty demanded for the relevant periods and highlighting the importance of bona fide belief in determining excise duty obligations.