2014 (10) TMI 680 - AT - Central Excise

Manufacture - whether conversion of HR Coils into CR Sheets/Strips amounts to manufacture or not - Held that - Heading 72.08 and 72.09 of the Central Excise Tariff are based on the HSN heading 72.08 and 72.09 respectively and similarly heading 72.11 of the Central Excise Tariff is based on the same heading - 7211 of the HSN. Explanatory Notes to HSN heading 72.09 readwith Explanatory Notes Part IV B to Chapter 72 make a clear distinction between the cold rolled products and hot rolled products. According to the HSN Explanatory Notes to 72.09, the Cold rolled products of this heading because of their special properties - better surface finish, better aptitude to cold forming, stricter tolerance higher mechanical strength and generally reduced thickness are in general used for purposes different from those of their hot rolled counter parts and that cold rolled products are used in particular in the manufacture of automobile bodies, metal furniture, domestic appliances and for producing angles, shapes, sections by a cold process and that they are easy to coat by tin plating, electro plating, varnishing, enameling and coating by plastic etc. Thus it is clear that not only the cold rolled products and hot rolled products have different characteristics, but they have different uses and different commercial identity. Therefore, we hold that cold rolling of HR Coils results in emergence of a new product with distinct and different commercial identity, characteristics and uses and therefore this process would amount to manufacture. In view of this, we uphold the Commissioner s finding on this point. Shortage of 1145.35 M.T. of HR Coils - Held that - from the correspondence between the appellant and M/s HSC it is also seen that in December 2000, the appellant had asked M/s HSC to return the quantity without any job work and according to the appellant, the coils in respect of which the Cenvat credit had been taken, have been sold on payment of duty under the invoices issued under Rule 57AB. The Commissioner while confirming the demand on the entire quantity of 1145.35 M.T. of HR Coils had not considered, the appellant s plea that out of 1145.35 M.T. of HR Coils, 1106.34 M.T. of HR Coils had been sold as such under invoices issued under Rule 57AB and the balance quantity had been taken up by them for processing into CR Sheets/Strips. When the appellant have produced the invoices issued under Rule 57AB regarding sale of the HR Coils on payment of duty, this claim has to be examined which could be done by ascertaining as to whether the Cenvat credit availed in respect of the 1106.34 M.T. of HR Coils out of 1145.35 M.T. of Coil received from SAIL had been reversed. If duty on 1106.34 M.T. of HR Coils equal to the Cenvat credit availed had been paid, the same cannot be demanded again. This aspect has not been examined in the impugned order. Similarly, the Appellant s claim that about 39 M.T. of HR Coils had been taken up for processing had also not been examined. In view of this, the demand of duty on 1145.35 M.T. Cenvat credit availed HR Coils would have to be set aside and the matter would have to be remanded to Commissioner for denovo adjudication. Suppression of production - clandestine removal of goods - Held that - The appellant s contention that the difference regarding quantity of the CR Sheets produced recorded in the two registers may due to calculation mistake is a vague explanation and on this point we agree with the Commissioner s finding that the difference of 18.87 M.T. had been clandestinely removed without payment of duty. Therefore, the duty demand on this quantity also has to be upheld. Duty demand on clandestine removal of 800.263 M.T. of CR Sheets (570.833 M.T. 18.870 M.T. 22.22 M.T. 66.64 M.T. 121.7 M.T.) and duty demand of 4.296 of HR/CR Scrap, alongwith interest on this duty under Section 11AB and penalty on the Appellant company under Section 11AC equal to the duty demand, is upheld. However, the duty demand on 42.425 M.T. of Silicon Electrical Steel and Cenvat credit demand on alleged shortage of 1145.335 M.T. of HR Coils is set aside and the matter is remanded to the Commissioner for denovo adjudication after considering the explanation given by the appellant - Decided partly in favour of assessee.

Issues Involved:
1. Whether the conversion of HR Coils into CR Sheets/Strips amounts to manufacture.
2. Alleged shortage of 1145.35 M.T. of HR Coils.
3. Alleged shortage of 42.425 M.T. of Silicon Electrical Steel.
4. Alleged shortage of 4.296 M.T. of HR/CR Scrap and 570.833 M.T. of CR Strips.
5. Alleged suppression of production of 18.87 M.T. of CR Sheets and its clandestine removal.
6. Duty demand on alleged clandestine removal of 210.63 M.T. of CR Sheets under parallel invoices.

Detailed Analysis:

1. Conversion of HR Coils into CR Sheets/Strips:
The Tribunal examined whether the conversion of HR Coils into CR Sheets/Strips constitutes manufacture. It was held that the process involves significant changes, including pickling, cold rolling, annealing, and slitting, resulting in products with different characteristics and uses. The Tribunal upheld that this process results in a new product with distinct commercial identity, thus amounting to manufacture.

2. Alleged Shortage of 1145.35 M.T. of HR Coils:
The appellant claimed that 1106.34 M.T. of HR Coils were sent to M/s HSC for slitting and the remaining 39 M.T. were in process. The Commissioner did not consider the appellant's evidence of duty-paid invoices for the HR Coils. The Tribunal set aside the duty demand and remanded the matter for denovo adjudication to verify if the Cenvat credit availed HR Coils were sold on payment of duty and if the credit was reversed.

3. Alleged Shortage of 42.425 M.T. of Silicon Electrical Steel:
The appellant contended that this quantity was lying in another unit and duty had been paid in February 2001. The Commissioner did not examine this plea. The Tribunal found the Commissioner's findings unsatisfactory and remanded the matter for denovo consideration of the appellant's claim that duty had been paid.

4. Alleged Shortage of 4.296 M.T. of HR/CR Scrap and 570.833 M.T. of CR Strips:
The appellant's explanation that the scrap was scattered and the CR Strips were reissued for further processing was not accepted. The Tribunal upheld the duty demand on these quantities, noting that the appellant did not promptly notify the officers about the presence of these materials.

5. Alleged Suppression of Production of 18.87 M.T. of CR Sheets:
Based on the difference in production recorded in two RG-1 registers, the Tribunal agreed with the Commissioner that the appellant had clandestinely removed this quantity without payment of duty. The appellant's explanation of a calculation mistake was deemed vague.

6. Duty Demand on Alleged Clandestine Removal of 210.63 M.T. of CR Sheets:
The Tribunal found the appellant's explanations for parallel invoices unsatisfactory. The significant shortage of finished CR Sheets further indicated clandestine removal. The Tribunal upheld the duty demand on 210.63 M.T. of CR Strips.

Conclusion:
The Tribunal upheld the duty demand on the clandestine removal of 800.263 M.T. of CR Sheets and 4.296 M.T. of HR/CR Scrap, along with interest and penalty. However, the duty demand on 42.425 M.T. of Silicon Electrical Steel and the Cenvat credit demand on 1145.335 M.T. of HR Coils were set aside and remanded for denovo adjudication.

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