2015 (5) TMI 411 - AT - Central Excise

Waiver of pre deposit - Denial of CENVAT Credit - final product is exempted under Sl. No. 11 of Notification No. 3/2006-CE dated 01.3.2006 - Held that - Sl. No. 11 to Notification No. 03/2006-C.E. dated 1.3.2006 exempts 'all goods' falling under CTH 1517 9020 or 1518 (other than margarine and similar edible preparation).Chapter heading 1517 10 covers Margarine, excluding liquid margarine. Peanut butter is specifically covered Tariff 15179020 under the category other . This is one of the grounds taken by the Revenue for differentiation between 'margarine' and 'peanutbutter' and to take the view that both are different. The appellant's stand is that both the products are interchangeable for end use and therefore, are to be treated as similar to each other. The Revenue has also taken a view that both the products are obtained from different origin; margarine is a butter derived from animal fats whereas the peanut butter is plant fat. - In any case, the entire exercise would have been revenue neutral but for the fact that in this case, there happened to be a higher rate of duty on the imported goods and the value addition is not sufficient and as a result, the amount of tax payable on the final product is less than the credit available. Even then it is seen that out of the credit taken, an amount of ₹ 83,01,243/- paid by the appellants has to be considered as amount reversed. Therefore, in any case, the demand could not have been more than ₹ 1.35 crores. Having regard to the complication involved and different interpretations involved, we consider that if the appellant deposits an amount of ₹ 10 lakhs, that would be sufficient for the purpose of hearing the appeal. - partial stay granted.

Summary

Issues involved:
1. Entitlement to Cenvat credit for re-labeling activity and differentiation between 'Peanut butter' and 'Margarine'.
2. Reversal of credit for damaged inputs during manufacturing process.

Detailed analysis:
1. The appellant, engaged in manufacturing 'Peanut butter', 'Chocolate Pudding', and 'Ready to eat Popcorn', imported peanut butter under the brand 'Peter Pan' and re-labeled it as 'Sundrop'. The issue revolved around the treatment of re-labeling as manufacturing, leading to a denial of Cenvat credit on duty paid due to the final product's exemption under Notification No. 3/2006-CE. The Revenue argued that 'Peanut butter' and 'Margarine' are distinct products based on classification and physical/chemical nature. The appellant contended that both products are interchangeable for end use, citing General Rule for Interpretation and HSN Explanatory Note 1. The Tribunal noted the complexity of the issue, considering HSN Explanatory Notes, Tariff Heading, end use, and chemical properties. Despite potential revenue neutrality, the duty rate discrepancy led to a demand exceeding Rs. 1.35 crores. To facilitate appeal, the appellant was directed to deposit Rs. 10 lakhs within 8 weeks, with a stay on further recovery during the appeal.

2. The second issue addressed the reversal of credit for damaged inputs during manufacturing. The appellant accepted the demand for short receipt of inputs and reversed credit for a specific amount. They argued that remaining inputs were damaged during manufacturing, negating the need for further credit reversal under Rule 3(5B) of the CCR, 2004. The Tribunal acknowledged the complexity of the situation, emphasizing the need to consider various factors like HSN Explanatory Notes, Tariff Heading, and chemical properties. Despite recognizing the potential revenue neutrality, the duty rate discrepancy resulted in a demand exceeding Rs. 1.35 crores. Consequently, the appellant was directed to deposit Rs. 10 lakhs within 8 weeks for the appeal process, with a stay on additional recovery during the appeal period.