2013 (6) TMI 633 - AT - Central Excise

Cenvat Credit - Extended period of limitation - difference of opinion - recovery of wrongly availed credit - Rebate erroneously granted on the duty on exported goods by utilizing irregular availed credit - Difference of Opinion Whether the Member (Judicial) is correct is holding that prima facie demand for extended period of limitation cannot be demanded at this stage and deposit of only ₹ 1 Crore out of ₹ 3,39,70,960/- would be sufficient. OR Whether the Member (Technical) is correct in holding that department has strong case, applicant cannot get refund of duty twice, when it is specifically prohibited and stuffing in presence of inspector cannot imply that extended period cannot be invoked and since balance of convenience lies in the money be with the Government and therefore ordering deposit in cash of ₹ 13,22,30,368/- (Rupees Thirteen Crore Twenty Two Lakhs Thirty Thousand Three Hundred Sixty Six Only) and freezing of credit of Rupees Nine Crore Eighty Lakhs Twenty Three Thousand Three Hundred Eighty Four Only or balance of credit available, whichever is lower. Matter referred to 3rd member.

Summary

Issues Involved:
1. Wrongly availed credit of Rs. 23,02,53,752/-.
2. Erroneously granted rebate on duty on exported goods amounting to Rs. 13,22,30,368/-.
3. Interest and penalty associated with the above demands.
4. Whether the activity of labeling amounts to manufacture under Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985.
5. Applicability of the extended period of limitation for demand.

Detailed Analysis:

1. Wrongly Availed Credit of Rs. 23,02,53,752/-:
The applicants procured Coco Butter and Coco Powder from their factory in Jammu and imported similar goods, availing credit for the duty paid. The central issue is whether the activity of affixing labels on these goods in Mumbai constitutes "manufacture" under Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985. The applicants argue that labeling amounts to manufacture, thus justifying the availed credit. However, the tribunal noted that mere labeling does not constitute manufacture, referencing the precedent set in M/s. Sree Leathers vs. CCE, Kolkata-V. The tribunal was not convinced that labeling alone amounts to manufacture and thus, prima facie, the credit was availed wrongly.

2. Erroneously Granted Rebate on Duty on Exported Goods:
The applicants claimed a rebate on duty for exported goods, arguing that the goods were manufactured in Mumbai by labeling. The tribunal observed that the goods were already marketable before labeling, and the additional labels did not add any new marketable feature. It was noted that the goods were cleared from Jammu under exemption notifications and brought to Mumbai, where additional labels were affixed before export. The tribunal found that this practice was an attempt to claim rebate fraudulently, as rebate is not allowed for goods manufactured under exemption notifications in Jammu.

3. Interest and Penalty:
Interest and penalties were imposed on the wrongly availed credit and erroneous rebate claims. The tribunal directed the applicants to make a pre-deposit of Rs. 1 Crore, considering the extended period of limitation could not be demanded at this stage. The tribunal emphasized the need to safeguard the interests of revenue while considering undue hardship to the applicants.

4. Whether Labeling Amounts to Manufacture:
The applicants argued that labeling constitutes manufacture as per Note 3 to Chapter 18, which includes labeling or relabeling as manufacturing activities. However, the tribunal noted that the goods were already labeled and marketable before the additional labels were affixed. The tribunal cited various judgments where similar activities were not considered manufacturing, thus rejecting the applicants' claim.

5. Applicability of Extended Period of Limitation:
The tribunal was divided on whether the extended period of limitation was applicable. One member argued that since the goods were factory-stuffed and verified by Central Excise officers, the department had knowledge of the activities, and thus the extended period could not be invoked. The other member disagreed, stating that factory stuffing does not imply departmental knowledge of credit availing or manufacturing activities. The tribunal directed the matter to be referred to the Hon'ble President for a third member's decision due to the difference in opinion.

Conclusion:
The tribunal directed the applicants to deposit Rs. 1 Crore and froze the remaining credit until the final hearing. The matter was referred to the Hon'ble President for a third member's decision on the extended period of limitation and the appropriate pre-deposit amount, highlighting the need to balance undue hardship to the applicant with safeguarding revenue interests.