2009 (1) TMI 657 - AT - Central Excise

Cenvat/Modvat credit - various inputs - Revenue has taken a stand that the process undergone by the inputs in respect of these products does not amount to manufacture - Held that - In M/s. Rico Auto Industries Ltd. 2006 (12) TMI 326 - CESTAT, NEW DELHI it was held that process of broaching and drilling in relation to rotor oil filters and outer turning, hole drilling and tapping in relation to GSD castings amounted to manufacture. The appellants are eligible for the CENVAT credit in respect of these products and since Section Note 6 covers both chapter 84 & 85. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the processes undertaken by the appellants amount to "manufacture" under Central Excise Tariff Act, 1985.
2. Eligibility of the appellants for Cenvat credit on inputs used in the manufacture of finished goods.
3. Imposition of penalties and demand for interest on Cenvat credit utilized.

Issue-wise Detailed Analysis:

1. Whether the processes undertaken by the appellants amount to "manufacture" under Central Excise Tariff Act, 1985:

The appellants are engaged in the manufacture of various products such as Coolers, Dispensers, Fryers, and Ovens, falling under Chapter 84 & 85 of the Central Excise Tariff. The core dispute revolves around 47 items listed, where the Revenue contended that the processes undertaken by the appellants did not amount to manufacture. The appellants argued that the processes they performed, which included physical verification, unpacking, assembly, fitting, adjustment, leak testing, programming, branding, and packing, among others, amounted to manufacture. They supported their claim by referring to Section Note 6 to Section 16, which states that converting incomplete or unfinished goods into complete or finished goods amounts to manufacture. The Tribunal agreed with the appellants, citing previous decisions in similar cases such as M/s. Rico Auto Industries Ltd., M/s. Indo Asian Fusegear Ltd., and M/s. S.M. Telesys Ltd., where similar processes were deemed to constitute manufacture.

2. Eligibility of the appellants for Cenvat credit on inputs used in the manufacture of finished goods:

The appellants had availed credit of duty on inputs and utilized said credit for payment of duty on the finished goods. The Revenue's stance was that since the processes did not amount to manufacture, the appellants were not entitled to Cenvat credit. However, the Tribunal found that the processes undertaken by the appellants did indeed amount to manufacture. Therefore, the appellants were eligible for Cenvat credit. The Tribunal noted that the appellants had provided production registers and documents to show that the processes were actually carried out and that the imported inputs could not be cleared as such but had to be customized based on specific customer requirements. This customization process met the criteria of manufacture, thereby entitling the appellants to Cenvat credit.

3. Imposition of penalties and demand for interest on Cenvat credit utilized:

The impugned order had imposed a penalty of Rs. 2,75,08,187/- on the appellant company and Rs. 10 lakhs on the Managing Director. Additionally, interest was demanded on the Cenvat credit utilized by the appellants since it was held to be inadmissible. However, since the Tribunal concluded that the processes amounted to manufacture and the appellants were eligible for Cenvat credit, the penalties and interest imposed were deemed unjustified. Consequently, the appeals filed by the appellants were allowed with consequential relief.

Conclusion:

The Tribunal accepted the appellants' contention that the processes undertaken amounted to manufacture under Section Note 6 to Section 16, thereby making them eligible for Cenvat credit. The penalties and interest imposed by the Revenue were set aside. The appeals filed by the appellants were allowed with consequential relief.

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