2012 (7) TMI 290 - AT - Central Excise

Disallowance of cenvat credit - process of printing and laminating the bare polyester / metalised film - whether amount to manufacture - appellants were using duty paid polyester film and metalized film as input for their final product - Held that - If the department wanted to contend that the assessee has undertaken manufacture, the department was required to prove it by a cogent evidence and that the Tribunal was clearly in error in seeking to cast the burden on the assessee to show that there was no process of manufacture - the Commissioner (Appeals) has not cared to look into the process through which the finished goods were cleared by the manufacturing assessee s emerge out of the process of manufacture. It is clear that the appellant after purchasing the bare polyester/ metalised film on payment of duty, first subject those film to printing as per the requirement of the customer and thereafter those films are laminated either in two layers or three layers, thus the aforesaid process changes the character of the bare polyester film (inputs) in terms of its user as also the thickness and lamination falling within the definition of manufacture as defined under Section 2(f)- The department having accepted the excise duty on the final product cannot be permitted to deny cenvat credit on the inputs used for the manufacture of the final product on a technical plea of department - decided in favour of assessee.

Issues Involved:
1. Whether the process of printing and lamination on the bare polyester/metalised films amounts to manufacture.
2. If the aforesaid process does not amount to manufacture, whether the department is justified in disallowing the cenvat credit availed by the appellants on duty-paid inputs for the manufacture of their final product which was cleared on payment of excise duty.

Issue-wise Detailed Analysis:

Issue 1: Whether the process of printing and lamination on the bare polyester/metalised films amounts to manufacture.

The appellants, M/s Markwell Paper Plast Pvt. Ltd., M/s Sheetal Mercantile (P) Ltd., and M/s Chawla Packaging (P) Ltd., are engaged in the manufacture of printed plastic laminated film, printed metalised film, and other laminated metalised film. They availed cenvat credit on duty-paid inputs used in manufacturing their final products. The department, referencing the Supreme Court judgment in Metlex (I) Pvt. Ltd. vs. CCE, New Delhi, argued that the process of printing and laminating the bare polyester/metalised film did not amount to manufacture. Consequently, show cause notices were issued proposing to disallow the cenvat credit availed by the appellants.

The appellants contested, explaining that their process amounted to manufacture within the definition of Section 2(f) of the Central Excise Act, 1944. They argued that since they cleared their final product on payment of excise duty, there was no justification for denying cenvat credit on the inputs used. The adjudicating authorities, however, disallowed the cenvat credit and confirmed the demands with interest and penalties.

Upon review, it was noted that the Supreme Court's decision in Metlex (I) Pvt. Ltd. was based on the department's failure to prove that the process amounted to manufacture. The Tribunal clarified that the Metlex judgment could not be universally applied without considering the facts of each case. The appellants' process involved printing on bare polyester film and laminating it in layers, which changed the character of the film in terms of user and thickness, thus falling within the definition of manufacture under Section 2(f) of the Central Excise Act, 1944. This view was supported by the Supreme Court judgment in Laminated Packaging (P) Ltd., which held that polyethylene laminated kraft paper produced from duty-paid kraft paper amounted to manufacture.

Issue 2: If the aforesaid process does not amount to manufacture, whether the department is justified in disallowing the cenvat credit availed by the appellants on duty-paid inputs for the manufacture of their final product which was cleared on payment of excise duty.

The appellants argued that as per the Excise Act and Cenvat Credit Rules, 2004, they were entitled to avail cenvat credit on inputs used for manufacturing the final product, which was cleared on payment of excise duty. The department accepted the excise duty on the final product without protest, and thus could not later deny cenvat credit on the inputs on the grounds that the final product did not emerge from a manufacturing process.

The Tribunal agreed, stating that even if the final products did not emerge from a manufacturing process, the department, having accepted the excise duty, could not deny cenvat credit on such technical grounds. Such an argument would negate the cenvat credit scheme's objective, which aims to protect the assessee from double taxation.

Conclusion:

The Tribunal found the orders of the respective Commissioners unsustainable in law and set them aside. The process of printing and laminating bare polyester/metalised films was held to amount to manufacture. Additionally, the department's acceptance of excise duty on the final product precluded it from denying cenvat credit on the inputs used for its manufacture.

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