2014 (2) TMI 970 - AT - Central Excise

Availment of CENVAT Credit - Penalty u/s 11AC - Interest u/s 11AB - Held that - appellant discharged excise duty liability on the activity of repacking and this payment of duty by the appellant was not challenged by the Revenue. Revenue s contention is that the activity does not amount to manufacture and therefore, the appellant is not eligible for the credit of the CVD paid on the input materials - Even if the appellant had not discharged any excise duty liability, they could have claimed drawback of the Customs and Excise duty paid on the input materials. Therefore, there is no incentive for the appellant to undertake repacking activity and discharge duty liability with an intention to gain any undue benefit - Therefore, we are of the prima facie view that the appellant has made out a case in their favour for grant of stay and accordingly we grant unconditional waiver from pre-deposit of the dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal - Stay granted.

Summary

Issues:
1. Classification of imported goods for repacking and excise duty liability.
2. Eligibility of the appellant for taking credit of CVD paid on imported goods.
3. Discharge of excise duty liability on repacking activity.
4. Allegation of deliberate activity by the appellant for availing ineligible rebate.
5. Grant of stay petition and waiver from pre-deposit during the appeal.

Analysis:

1. Classification of imported goods for repacking and excise duty liability:
The appellant imported materials for repacking into retail packs and discharged excise duty liability by taking credit of the CVD paid on the imported goods. The department contended that repacking did not apply to the goods falling under Chapter 39 of the tariff, challenging the appellant's eligibility for credit. A show cause notice was issued demanding recovery under the CENVAT Credit Rules. The appellant argued that the change in classification post-August 2008 led to confusion, as they continued to discharge duty liability under Chapter 38. The Tribunal's decision in Ajinkya Enterprises vs. Commissioner of Central Excise supported the appellant's stance that duty payment, even if wrong, should not deny CENVAT credit.

2. Eligibility of the appellant for taking credit of CVD paid on imported goods:
The appellant claimed eligibility for credit of CVD paid on the imported goods used for repacking. The Revenue contended that the repacking activity did not amount to manufacture, thus challenging the appellant's eligibility for credit. The Tribunal found that the appellant had discharged excise duty liability on repacking, which was not disputed by the Revenue. The Tribunal also noted that even if duty had not been discharged, the appellant could have claimed drawback of Customs and Excise duty paid on the input materials, indicating no incentive for the appellant to undertake repacking for undue benefit.

3. Discharge of excise duty liability on repacking activity:
The appellant discharged excise duty liability on the repacking activity, which was accepted by the Revenue. However, the Revenue argued that the activity did not constitute manufacture, questioning the appellant's eligibility for credit. The appellant's argument was based on the change in classification post-August 2008, leading to a misunderstanding regarding duty liability. The Tribunal found that the appellant had a prima facie case in their favor for grant of stay, leading to the waiver from pre-deposit of the adjudged dues and stay on recovery during the appeal.

4. Allegation of deliberate activity by the appellant for availing ineligible rebate:
The Revenue alleged that the appellant deliberately paid duty on repacked goods to avail an ineligible rebate amount. However, the Tribunal did not find merit in this argument, stating that even without discharging duty, the appellant could have claimed drawback of Customs and Excise duty paid on input materials. The decision in Ajinkya Enterprises case supported the view that there was no incentive for the appellant to undertake repacking for undue benefit.

5. Grant of stay petition and waiver from pre-deposit during the appeal:
After considering the submissions from both sides, the Tribunal granted unconditional waiver from pre-deposit of the dues adjudged against the appellant and stayed the recovery during the appeal. The Tribunal found that the appellant had made out a case in their favor for the grant of stay, indicating a prima facie view supporting the appellant's position.