2015 (9) TMI 679 - AT - Central Excise

Denial of CENVAT Credit - Clandestine removal of goods - Duty demand u/s 11D - Captive consumption - Demand of interest - Held that - Every person who is liable to pay duty under this act or rules made thereunder has collected any amount in excess of duty assessed or determined is required to pay to the Central Government amount so collected. As per the show cause notice, the allegation of the Revenue is that as the activity of the appellant does not amount to manufacture therefore, the appellant is not liable to pay duty. Therefore, the provisions of section 11D of the Act are not applicable to the facts of this case. Although the appellant has paid to the Central Government what amount is collected from the customers as duty, therefore, the demand under section 11D of the Act is not sustainable. Consequently, interest is also not payable. As per the CBEC Circular No. 345/2/2000 TRU dated 29.08.2000 which explains that in the exact procedure that the manufacturer can export goods under bond without payment of duty. This is a facility that is available to the manufacturer under the excise procedure and in such case appropriate duty on goods i.e. payable is nil, therefore, there is no bar for the manufacturer to remove inputs or capital goods for exports undergone. It is further seen that as per the CBEC Circular 283/117/96-CX dated 31.12.1996 it has clarified that MODVAT credit in RG 23A part 2 account against the export of inputs as such under bond can be utilized in the same manner as it is utilized for final product under the proviso of Rule 57(F)(4). Therefore, it falls from that such input should be allowed to be exported under bond without any reversal of credit. Admittedly, in this case as per the Revenue, the appellant has exported the inputs as such. Therefore, as per the CBEC Circular cited here in above, the appellant is entitled to avail Cenvat Credit thereon. Therefore, the question of reversal of the same does not arise. With these terms, the demand on this account is set aside. Definitely the appellant is required to pay duty on captively processed goods which are liable for duty. But we should not forget the fact that the final product which does not amount to manufacture has been cleared by the appellant on payment of duty. Therefore, the said payment of duty shall amount to payment of duty on captively consumed product i.e. polythene film. In these terms, the demand of ₹ 75,80,380/- is not sustainable. Accordingly same is set aside. - appellant used the raw material purchased clandestinely in the production of finished goods. When an input has been procured clandestinely, definitely Cenvat Credit on the said input has not been availed by the appellant. Therefore, the question of reversal of same does not arise when there is no credit taken. In these terms, the demand of ₹ 14,70,682/- and ₹ 3,90,734/- are also not sustainable. Therefore, demand is set aside. - Decided in favour of assessee.

Issues Involved:
1. Demand of Rs. 8,45,11,283/- under Section 11D of the Central Excise Act.
2. Demand of Cenvat Credit amounting to Rs. 15,68,167/- on inputs used in exported metalized polyester film.
3. Demand of Rs. 75,80,380/- on polythene film manufactured and captively consumed.
4. Demand of Rs. 14,70,682/- for clandestine removal of laminated film.
5. Demand of Rs. 3,90,734/- for clandestine removal of processed goods.
6. Penalty under Rule 13/15 of Cenvat Credit Rules 2002 and Rule 25 of Central Excise Rules 2002.
7. Penalty on individual directors and manager under Rule 13/15 of Cenvat Credit Rules 2004 and Rule 26 of Central Excise Rules 2002.

Issue-wise Detailed Analysis:

i. Demand of Rs. 8,45,11,283/- under Section 11D of the Central Excise Act:
The appellant argued that they had cleared metalized/laminated films on payment of duty, which was confirmed by the Adjudicating Authority. The Commissioner recorded that the appellant collected and deposited the duty to the Government Account. The Tribunal found that Section 11D, which mandates depositing any excess duty collected, was not applicable as the appellant was not liable to pay duty on the final product. The Tribunal concluded that the demand under Section 11D was unsustainable, and consequently, interest was also not payable.

ii. Demand of Cenvat Credit amounting to Rs. 15,68,167/- on inputs used in exported metalized polyester film:
The Tribunal referenced CBEC Circulars, which clarified that manufacturers could export goods under bond without reversing Cenvat Credit. Since the appellant exported inputs as such, they were entitled to avail Cenvat Credit. Therefore, the demand for reversal of credit was set aside.

iii. Demand of Rs. 75,80,380/- on polythene film manufactured and captively consumed:
The Tribunal acknowledged that duty is payable on captively consumed goods. However, since the final product was cleared on payment of duty, this payment was deemed to cover the duty on captively consumed polythene film. Thus, the demand of Rs. 75,80,380/- was not sustainable and was set aside.

iv. Demand of Rs. 14,70,682/- for clandestine removal of laminated film and v. Demand of Rs. 3,90,734/- for clandestine removal of processed goods:
The Tribunal noted that the appellant procured raw materials clandestinely and cleared finished goods without payment of duty. Since the inputs were procured clandestinely, no Cenvat Credit was availed, and thus, no reversal of credit was required. Consequently, the demands of Rs. 14,70,682/- and Rs. 3,90,734/- were set aside.

vi. Penalty under Rule 13/15 of Cenvat Credit Rules 2002 and Rule 25 of Central Excise Rules 2002:
Given that the demands were set aside, the penalties on the main appellant were also deemed not imposable.

vii. Penalty on individual directors and manager under Rule 13/15 of Cenvat Credit Rules 2004 and Rule 26 of Central Excise Rules 2002:
Similarly, penalties on the individual directors and manager were not imposable as the primary demands were set aside.

Conclusion:
The Tribunal set aside the demands of duty, interest, and penalties on the main appellant and co-appellants. The appeals were allowed with consequential relief.

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