2015 (6) TMI 617 - AT - Central Excise

Manufacture - cutting and slitting of imported self-adhesive film and self-adhesive paper - Manufacturing activity or not - assessee argued that in the process of slitting and cutting no new, distinct or different commodity comes into existence. The use of the goods also do not change - Held that - Mere mention of a product in a tariff heading does not necessarily imply that the said product was obtained by the process of manufacturing. That, just because the raw material and the finished product came under two different headings, it cannot be presumed that the process of obtaining the finished product from such raw material automatically constituted manufacture. In the present case, merely because tissue paper in the jumbo roll of the size exceeding 36 cms.fell in one entry and the toilet roll of a width not exceeding 36 cms. fell in a different entry, it cannot be presumed that the process of slitting and cutting of jumbo rolls of toilet tissue paper into various shapes and sizes amounted to manufacture. Manufacture on the basis of value addition of 180% - Held that - There is no change in the nature or characteristics of the tissue paper in the jumbo roll and the nature and characteristics of the tissue paper in the table napkin, facial tissues etc. Therefore, without such change in the nature or characteristics of the tissue paper, value addition on account of transport charges, sales tax, distribution and selling expenses and trading margin cannot be an indicia to decide what is manufacture. Thus, value addition without any change in the name, character or end-use by mere cutting or slitting of jumbo rolls cannot constitute criteria to decide what is manufacture . - value addition criteria as applied by the Commissioner is erroneous. The activity undertaken by the appellant will not amount to manufacture. Tthis is not a fit case for confiscation of the goods under Rule 15(1) or imposition of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Similarly, we are of the view that no penalty is required to be imposed on Shri Shailesh Nema, Director of the respondent-company under Rule 26 of the Central Excise Rules, 2002. - Decided against the Revenue. CENVAT credit has been utilised in the clearance of the final products which are now held to be non-dutiable, Revenue cannot seek to demand the credit so utilised. - Held that - appellant should furnish the details of the credit taken and credit utilised for clearance of the corresponding final products and in case input credit taken is more than the duty paid on the final products, then the differential CENVAT credit needs to be reversed or paid back. Similarly, credit availed on capital goods need to be reversed or paid back. - Matter remanded back for limited purpose - Decided partly in favor of revenue.

Issues Involved:

1. Whether the process of slitting and cutting of imported self-adhesive film and paper amounts to manufacture under Section 2(f) of the Central Excise Act, 1944.
2. The eligibility of the respondent-assessee to avail CENVAT credit on inputs and capital goods.
3. The applicability of the extended period of limitation.
4. The imposition of penalty and confiscation of goods.

Issue-wise Detailed Analysis:

1. Process of Slitting and Cutting as Manufacture:

The primary issue revolves around whether the process of slitting and cutting of imported self-adhesive film and paper constitutes "manufacture" under Section 2(f) of the Central Excise Act, 1944. The Revenue contended that no new, distinct, or different commodity is created through this process, and the use of the goods remains unchanged. The Revenue relied on the Supreme Court decision in Commissioner of Central Excise, New Delhi vs. S.R. Tissues Pvt. Ltd., which held that slitting/cutting of jumbo rolls into smaller sizes does not amount to manufacture. The Tribunal agreed with this view, stating that the process does not result in a new product with a distinct name, character, or use. The Tribunal also noted that the input and final product fall under the same tariff entry, and the number of machines used is irrelevant in determining whether the process amounts to manufacture.

2. Eligibility for CENVAT Credit:

The Revenue argued that since the process does not amount to manufacture, the respondent-assessee is not eligible to avail CENVAT credit on inputs and capital goods. The learned Senior Counsel for the respondent-assessee contended that the process is elaborate and should be considered as manufacture, citing the Supreme Court judgment in Kores India Ltd. However, the Tribunal found that the facts in the present case are similar to those in S.R. Tissues Pvt. Ltd., where the process did not amount to manufacture. Consequently, the Tribunal held that the activity undertaken by the appellant does not amount to manufacture, and thus, the CENVAT credit availed is not admissible.

3. Extended Period of Limitation:

The respondent-assessee argued that the extended period of limitation should not be invoked as they had submitted the manufacturing process details at the time of registration. The Tribunal, however, was not convinced by this argument, stating that the purpose of the registration application is only to grant registration and not to determine whether the activity amounts to manufacture. The Tribunal found that there was suppression of facts, justifying the invocation of the extended period of limitation.

4. Imposition of Penalty and Confiscation of Goods:

The Revenue proposed penalties and confiscation under various provisions. The Tribunal, considering the nature of the dispute, decided that this was not a fit case for confiscation of goods or imposition of penalties under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Similarly, no penalty was imposed on the Director of the respondent-company.

Conclusion:

The Tribunal allowed the Revenue's appeal by way of remand, directing the respondent-assessee to furnish details of the credit taken and utilized for the clearance of the corresponding final products. If the input credit taken exceeds the duty paid on the final products, the differential CENVAT credit needs to be reversed or paid back. The Tribunal also upheld the invocation of the extended period of limitation but set aside the penalties and confiscation. The judgment was pronounced on 11/05/2015.

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