2014 (12) TMI 72 - AT - Central Excise

Waiver of pre deposit - CENVAT Credit - the Investigating officers were of the view that the Kathua unit was clearing fully finished Sputtering Targets which were being exported as such and only to wrongly avail Cenvat credit, some processing was being shown at Nathupur, Sonepat unit while in fact, there was no manufacturing activity in that unit and hence the Cenvat credit being availed by Nathupur unit in terms of Rule 12 of the Cenvat Credit Rules, 2004 was contrary to the provisions of law. - Held that - Sputtering Targets were being cleared for export from Nathupur unit under ARE-1s and permission for in factory examination and sealing had been given by the Jurisdictional Central Excise Authorities. The ARE-1s bear the certificate signed by the Jurisdictional Central Excise Superintendent and the Jurisdictional Inspector certifying the examination of the export consignments and payment of duty in respect of the same. When the Jurisdictional Central Excise officers were visiting the Nathupur unit for examination of the export consignments and their sealing, it is inconceivable that they would not be aware of the activity in the factory which they were visiting. There is no allegation against the departmental officers, who had given permission for in factory examination of the export consignments and the officers who had regularly visited the Nathupur unit for examination and sealing of the export consignments, that they were in connivance with the appellant. In view of this, at this prima facie stage, it is difficult to accept the Department s allegation that there was no manufacturing activity at Nathupur unit and it was a dummy unit and it is Kathua unit which was manufacturing and clearing fully finished Sputtering Targets. Classification of Sputtering Targets - Held that - Sputtering targets consist of a flat piece of copper bonded with a layer of gold or silver or any other metal whose film is to be deposited on a substrate. In Physical Vapour Deposition Machine, the Sputtering Targets is bombarded by very high energy atoms of an inert gas like Argon as a result of which the atoms of gold/silver/other metal in the Sputtering Target get ejected, and are deposited on a substrate like silicon wafer, forming a thin film. Thus except for use with Physical Vapour Deposition Machine, there is no other use of the Sputtering Targets. In view of this, the Sputtering Targets have to be treated as component of the Physical Vapour Deposition Machine of heading 8543 and prima facie would be classifiable under sub-heading 85439000. Departmental officers were aware of the activity at manufacturing unit of the appellant company at Nathupur and hence Nathupur unit cannot be accused of wilful of suppression of any information with intent to evade the payment of duty by wrongly availing the Cenvat credit and for this reason, neither longer limitation period under Section 11A(1) would be invokable nor the penalty under Section 11 AC would be imposable. The entire Cenvat credit demand would be time-barred. - appellant have prima facie case in their favour. The requirement of pre-deposit of Cenvat credit demand, interest thereon and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed - Stay granted.

Issues Involved:
1. Classification of Sputtering Targets.
2. Manufacturing activity at Nathupur unit.
3. Eligibility for Cenvat credit under Rule 12 of the Cenvat Credit Rules, 2004.
4. Invocation of the extended limitation period under Section 11A(1) of the Central Excise Act, 1944.
5. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Classification of Sputtering Targets:
The primary issue was whether the Sputtering Targets should be classified under sub-heading 8543 90 00 as parts of Physical Vapour Deposition machines or under sub-heading 7115 90 90 as "other articles of gold." The Tribunal noted that Sputtering Targets are used exclusively with Physical Vapour Deposition machines, which are classifiable under heading 8543. Given their specific use, the Tribunal found that the Sputtering Targets should be classified under sub-heading 8543 90 00. The Tribunal also referenced Chapter Note 3(k) of Chapter 71, which excludes machinery parts from Chapter 71, supporting the classification under heading 8543.

2. Manufacturing Activity at Nathupur Unit:
The Department alleged that there was no manufacturing activity at the Nathupur unit and that it was a dummy unit created to avail Cenvat credit fraudulently. However, the Tribunal found that the Deputy Commissioner and Assistant Commissioner had previously confirmed that the Nathupur unit was receiving Sputtering Target blanks from the Kathua unit and processing them into fully finished products. The Tribunal also noted that the Central Excise officers had been visiting the Nathupur unit for examination and sealing of export consignments, indicating that the Department was aware of the activities at the Nathupur unit. Thus, the Tribunal did not accept the Department's allegation of no manufacturing activity at Nathupur.

3. Eligibility for Cenvat Credit under Rule 12:
The Department contended that the Nathupur unit was not eligible for Cenvat credit as the goods were fully exempt from duty under Notification No. 5/2006-C.E. The Tribunal, however, found that the goods were correctly classified under sub-heading 8543 90 00 and not under sub-heading 7115 90 90. As such, the Kathua unit was eligible for duty exemption under Notification No. 56/2002-C.E., and the Nathupur unit was eligible to avail Cenvat credit in terms of Rule 12 of the Cenvat Credit Rules, 2004.

4. Invocation of Extended Limitation Period:
The Department invoked the extended limitation period under Section 11A(1) of the Central Excise Act, 1944, alleging that the appellant had suppressed relevant facts. The Tribunal found that the Departmental officers were aware of the activities at the Nathupur unit, as they had been regularly visiting the unit for examination and sealing of export consignments. Therefore, the Tribunal concluded that there was no willful suppression of facts by the appellant, and the extended limitation period could not be invoked.

5. Imposition of Penalty under Section 11AC:
Given that the Tribunal found no willful suppression of facts and that the Department was aware of the activities at the Nathupur unit, it concluded that the penalty under Section 11AC of the Central Excise Act, 1944, was not imposable. The entire Cenvat credit demand was considered time-barred.

Conclusion:
The Tribunal found that the appellant had a prima facie case in their favor. The requirement of pre-deposit of the Cenvat credit demand, interest, and penalty was waived for the hearing of the appeal, and recovery thereof was stayed. The stay application was allowed.

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