2011 (3) TMI 813 - AT - Central Excise

Cenvat credit - process of lamination - process is not amounting to manufacture - Rule 3(4) of the Cenvat Credit Rules, 2004 and Rule 16 of the Central Excise Rules,2002 - held that - availing of credit on the inputs which are used in non-dutiable final product and yet attempting to utilize such credit, but the duty suppose to have been paid by the appellants on a non dutiable products by issuing invoices and disclosing such duty said to have been paid therein results in not only illegal act of availing the credit and attempting to utilize the same but also allowing the buyers to illegally avail of such credit - prima facie case having not been made out for total waiver of the amount demanded under the impugned order. - Appellant directed to deposit 60% of the amount demanded.

Summary

Issues Involved:
1. Confirmation and recovery of Cenvat credit.
2. Interpretation of Rule 3(4) of the Cenvat Credit Rules, 2004.
3. Interpretation of Rule 16 of the Central Excise Rules, 2002.
4. Validity of registration under the Central Excise Act.
5. Bar of limitation.
6. Financial hardship.
7. Reliance on past judgments and precedents.

Detailed Analysis:

1. Confirmation and Recovery of Cenvat Credit:
The appellants challenged the orders passed by the Commissioner (Appeals) and the Additional Commissioner, which confirmed the demand and ordered the recovery of Cenvat credit amounting to Rs. 13,68,021/- and Rs. 11,91,836/- for different periods, along with interest and penalties. The appellants argued that the credit was utilized for the payment of duty on the final product, and hence the authorities erred in confirming the demand. However, the tribunal found that the process of lamination does not amount to manufacture as per Section 2(f) of the Central Excise Act, and thus, the credit availed was not lawful.

2. Interpretation of Rule 3(4) of the Cenvat Credit Rules, 2004:
The appellants contended that under Rule 3(4), the Cenvat credit utilized for payment of duty on any final product should be considered valid. The tribunal clarified that only the Cenvat credit earned in accordance with the provisions of law can be utilized for payment of duty, and not any amount claimed by the manufacturer. Rule 3(4) does not support the utilization of credit that was not lawfully available to the manufacturer.

3. Interpretation of Rule 16 of the Central Excise Rules, 2002:
The appellants argued that the expression "for any other reason" in Rule 16(1) should allow them to avail credit for inputs used in the lamination process. The tribunal, applying the principle of ejusdem generis, held that the expression must be read in the context of "re-made, refined, re-conditioned," and thus, the inputs used for lamination do not qualify for Cenvat credit under this rule.

4. Validity of Registration under the Central Excise Act:
The appellants claimed that their registration under the Excise Act entitled them to the benefits of the Cenvat Credit Rules. The tribunal noted that while registration is mandatory, it does not automatically entitle a manufacturer to avail all benefits without complying with the conditions laid down under the rules. Hence, registration alone does not justify the availing of credit on inputs not used for manufacturing a dutiable final product.

5. Bar of Limitation:
The appellants raised the issue of limitation, arguing that the show cause notices were issued beyond the permissible period. The tribunal dismissed this claim, noting that the issue was not raised before the adjudicating authority or the Commissioner (Appeals). Limitation is a mixed question of law and fact, and must be raised at the earliest opportunity to allow the opposite party to counter it effectively.

6. Financial Hardship:
The appellants claimed financial hardship but failed to produce any material evidence to support this claim. The tribunal emphasized that without substantial proof, the claim of financial hardship cannot be considered.

7. Reliance on Past Judgments and Precedents:
The appellants referred to the Tribunal's decision in M/s. Lamicoat International Private Limited v. CCE, Noida, and the Gujarat High Court's decision in CCE&C Surat-III v. Creative Enterprises. The tribunal noted that the observations in the Lamicoat case were prima facie and specific to the stay petition, not laying down a binding precedent. Regarding the Creative Enterprises case, the tribunal highlighted that the decision was based on the specific facts of that case and did not establish a broad legal principle applicable to the present matter.

Conclusion:
The tribunal did not find a prima facie case for a total waiver of the demanded amount. The appellants were directed to deposit 60% of the demanded amount within eight weeks, while waiving the interest and penalty till the disposal of the appeals. Compliance was set for 27-6-2011.