2011 (9) TMI 863 - AT - Central Excise

Waiver of pre deposit - Held that - SKO refilled by them was contaminated and had flash point below 20.5 degree Centigrade and therefore it could not be cleared as such. It was indicated that it would be mixed with the crude and processed. The Department simply chose to reply saying that they can undertake reprocessing and no permission is required. Even for coming to the conclusion the reprocessing did not amount to manufacture, other than the internal correspondence indicating that SKO was to be reprocessed, no evidence has been shown to us to show that SKO was not mixed with crude and the name does not matter and as regards the document, no doubt it is called invoice but according to Rule 9 of Cenvat Credit Rules the document has to contain the essential details. If conversion/Processing of crude into SKO amounts to manufacture, once SKO is mixed with crude, SKO looses its identification and becomes part of crude. Hence in our opinion processing amounts to manufacture. Proper officer is required to look into the correctness of availment of credit and utilization of all the inputs. This aspect has not been considered. Under these circumstances we consider that appellant has made out a prima facie case for waiver of pre-deposit and for grant of stay, recovery of dues during the pendency of the appeal - Stay granted.

Summary

Issues:
1. Denial of Cenvat credit on duty paid for superior kerosene oil (SKO) received from the marketing division.
2. Invocation of extended period for demand of interest and penalty.
3. Interpretation of documents issued by the marketing department and determination of whether SKO processing amounts to manufacture.

Analysis:

Issue 1: Denial of Cenvat credit on duty paid for SKO:
The appellants took Cenvat credit for duty paid on SKO received from their marketing division for mixing with crude. The Department denied the credit, stating that SKO is not an input since the output was also SKO. The impugned order confirmed the demand for interest and imposed a penalty equal to the Cenvat credit.

Issue 2: Invocation of extended period for demand of interest and penalty:
The appellant argued that since the activity was undertaken with the Department's knowledge and there was no intention to suppress facts, the extended period for demand could not have been invoked. The Revenue failed to provide evidence that the SKO was not mixed with crude as claimed by the appellants in their letter to the Department.

Issue 3: Interpretation of documents and determination of manufacturing process:
The Commissioner argued that the appellants only undertook reprocessing, not manufacturing, as SKO cleared for the Public Distribution System (PDS) is duty exempt. The document issued by the marketing department was analyzed, concluding that it did not meet the requirements of Central Excise Rules and Cenvat Credit Rules. However, the appellants claimed that the SKO would be mixed with crude for processing, which in their view constituted manufacturing.

Judgment:
The Tribunal considered the submissions of both parties. It noted that the appellants' letter clearly stated the intention to mix contaminated SKO with crude for processing. The Tribunal found that once SKO is mixed with crude, it loses its identity and becomes part of the crude, constituting manufacturing. The Tribunal also highlighted the importance of the document containing essential details as per Cenvat Credit Rules. As the correctness of credit utilization was not adequately examined, the Tribunal granted a waiver of pre-deposit and stayed the recovery of dues during the appeal's pendency.