2010 (10) TMI 471 - AT - Central Excise

Manufacture - Imported rectifiers - The hi-pot test, programming, load sharing current sharing voltage test and burn-in test - in the absence of any technical write up as to how the rectifiers, after undergoing the processes as indicated herein, had resulted in a better rectifiers - Hence, unable to accept the assessee s contention that the processes indicated herein , would amount to process which is incidental or ancillary for the completion of the manufactured product - Since the definition of manufacture in Section 2(f) is not satisfied, it has to be concluded that there is no manufacture in the assessee s premises. Cenvat credit - The processes carried out by the assessee would not amount to manufacture, the corollary is that the appellant had cleared the rectifiers on which the credit was availed as such - Hence, the appellant has to reverse the actual amount of CENVAT credit availed on such rectifiers. Penalty - Appellant had been filing monthly returns regularly and was intimating the Revenue about the activities carried on, as per his bona fide belief that the rectifiers, would amount to manufacture, has been discharging the Central Excise duty on final products cleared from his factory - This act of the appellants cannot be considered as mis-statement or suppression of facts - If the Revenue authorities were entertaining any doubt about the manufacturing activity, they could have verified, inspected, as the regular monthly returns were filed with them - It is not justified in imposing equivalent amount of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Interest - The appellant is liable to pay interest on the amount, which has been utilized by him for discharge of duty liability.

Summary

Issues:
Appeal against Order-in-Original regarding availing CENVAT credit on rectifiers, whether processes amount to manufacture, reversal of credit, imposition of penalties, jurisdiction of adjudicating authority, applicability of CENVAT Credit Rules, demand of duty, liability to pay interest, and validity of penalties.

Analysis:
The appeal challenged the Order-in-Original dated 29-8-2008, focusing on the availing of CENVAT credit on rectifiers by the appellant. The audit party observed discrepancies in the duty paid on rectifiers imported and cleared as rectifier modules. The appellant claimed the processes carried out amounted to manufacture, contesting the show-cause notices demanding differential duty and CENVAT credit. The adjudicating authority rejected the contentions, confirming demands, imposing penalties, and demanding interest.

The appellant argued that specific processes conducted were essential for the rectifiers to function in Indian conditions, justifying the duty payment as for a manufactured product. They contested the application of Rule 3(5) of the CENVAT Credit Rules, emphasizing that rectifiers were not removed "as such" after processing. The appellant also challenged the jurisdiction of the adjudicating authority and the imposition of penalties, citing compliance with filing returns and Supreme Court judgments.

The Department contended that the processes were mere testing and inspection, not constituting manufacture. They supported the adjudicating authority's findings based on Supreme Court precedent regarding processes not resulting in a distinct product. The issue revolved around whether the rectifiers were cleared "as such" or as a manufactured product under the Central Excise Act and related rules.

The Tribunal analyzed the processes claimed by the appellant and found them insufficient to enhance the rectifiers' capacity, concluding they did not amount to manufacture. Consequently, the appellant was required to reverse the availed CENVAT credit on the rectifiers. The Tribunal upheld the demand for duty and interest based on the Punjab & Haryana High Court's precedent, while setting aside the penalties imposed by the adjudicating authority as unwarranted.

In summary, the Tribunal upheld the duty demand and interest payment but set aside the penalties, considering the appellant's bona fide belief in the manufacturing processes. The judgment clarified the distinction between testing and manufacturing processes, emphasizing compliance with CENVAT Credit Rules and the Central Excise Act. The decision highlighted the importance of technical substantiation for processes to qualify as incidental or ancillary to manufactured products, ultimately determining the liability for duty and penalties.