2011 (11) TMI 556 - AT - Central Excise

Waiver of pre-deposit of duty - Denial of CENVAT Credit - Denial on ground that the activity undertaken by the applicants does not amount to manufacture - Held that - applicants are importing motor vehicle chassis and paying appropriate CVD and taking credit of the same. The applicants are undertaking certain process on the chassis which are essential as per the Motor Vehicle Rules. As per Rule 124 of the Motor Vehicle Rules which provides the requirements of vehicle rear under run protecting device and the technical requirements of vehicle lateral protection side shall be as per IS specification and as per IS specification rear under run protective device is required. The chassis after doing certain fitments which are required under Motor Vehicles Rules were sent to the job workers under Challan and job workers manufactured the body on the duty paid chassis which were received by the applicants without payment of duty under Notification No. 214/86. However, on the introduction of Rule 4(5)(a) of the Cenvat Credit Rules, the job workers paying duty in respect of body building and the applicants on receipt of the body fitted chassis clearing the same on payment of appropriate duty. Revenue wants to deny the credit of Central Excise duty in respect of chassis imported by the applicants on the ground that the process undertaken by the applicants does not amount to manufacture. As the applicants have paid the duty by reversal of the credit at the time of clearance of motor vehicles, prima facie, we find that the applicants have strong case in their favour. Therefore, pre-deposit of duty, interest and penalty is waived and recovery thereof is stayed during the pendency of the appeal - Stay granted.

Summary

Issues:
Waiver of pre-deposit of duty, interest, and penalty based on the definition of "manufacture" under the Central Excise Act.

Analysis:
The applicants sought waiver of pre-deposit of duty, interest, and penalty amounting to Rs. 4,80,79,916/-, as the demand was confirmed due to denial of credit on the grounds that their activities did not constitute manufacture. The adjudicating authority concluded that activities complying with other laws would not amount to manufacture unless they independently satisfy the criteria set by the Courts in interpreting the definition of "manufacture" under the Central Excise Act.

The applicants imported chassis, paid countervailing duty, and undertook various processes such as fitting mirrors, lights, and kits as per CMVR requirements. They also performed additional processes on the motor vehicles received from job workers. The applicants argued that their activities fell under the definition of "manufacture" as per Section 2(f) of the Central Excise Act, citing relevant legal precedents.

The Revenue contended that the activities undertaken by the applicants did not amount to manufacturing motor vehicles, as they lacked plant or machinery and merely imported chassis without conducting essential processes. However, the Tribunal found that the applicants' processes on the chassis were crucial for compliance with Motor Vehicle Rules, and the job workers further manufactured bodies on the duty-paid chassis.

Referring to the definition of "manufacture" under Section 2(f) of the Central Excise Act, the Tribunal highlighted the Supreme Court's interpretation emphasizing that every change in a commodity due to treatment, labor, or manipulation does not constitute manufacture. It stated that a process is considered in relation to manufacture if it is integral to the production of goods. The Tribunal also cited a Kerala High Court decision where a process was deemed incidental to manufacture for giving a finishing touch.

Based on the legal interpretations and the facts presented, the Tribunal found that the applicants had a strong case for waiver of dues. It noted that the Revenue's argument to deny credit on the grounds of insufficient manufacturing activities was not persuasive, as the applicants had paid duty during clearance. Consequently, the Tribunal granted the waiver of pre-deposit of duty, interest, and penalty, and stayed the recovery during the appeal's pendency.

In conclusion, the Tribunal allowed the stay petition, ruling in favor of the applicants and emphasizing the importance of the definition of "manufacture" in determining the applicability of duties and penalties under the Central Excise Act.