2006 (10) TMI 74 - AT - Central Excise

Credit availed on inputs removed after partial processing Processing not amounts to manufacture so credit sought to be reversed Held that, even payment of duty on clearance of processed goods, though not dutiable, is itself a reversal of credit Demand, penalty and interest set aside

Summary

Issues:
1. Allegation of wrong availment of Cenvat credit on slitted steel strips
2. Department's demand for reversal of Cenvat credit, interest, and penalty

Analysis:

Issue 1: Allegation of wrong availment of Cenvat credit on slitted steel strips
The case involves the removal of cold rolled steel strips after partial processing into slitted steel strips on payment of excise duty. The department contended that slitting the steel strips does not constitute a manufacturing activity, thus challenging the payment of duty. The assessee, engaged in manufacturing ball and roller bearings, used cold rolled steel strips as raw materials. Any excess slitted steel strips were cleared out by paying excise duty on a higher value. The department alleged incorrect availment of Cenvat credit on these materials, requiring the assessee to reverse the credit, despite no dispute regarding duty payment on the cleared goods.

Issue 2: Department's demand for reversal of Cenvat credit, interest, and penalty
The Tribunal referred to various decisions, including CCE, Mumbai-IV v. Piramal Spinning & Weaving Mills Ltd. and PSL Holdings Ltd. v. CCE, Rajkot, to analyze the issue at hand. It was noted that the assessee had paid duty in accordance with the Cenvat Credit Rules, utilizing the credit for payment when inputs were removed as such or partially processed. The Tribunal highlighted that even if the cleared goods were not dutiable, the payment of duty effectively reversed the credit taken. Consequently, the Tribunal held that the authorities erred in confirming the demand, levying interest, and imposing a penalty. The impugned order was set aside, and the appeal by the assessee was allowed with consequential relief, if any.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the correct utilization of Cenvat credit and the payment of duty on cleared goods. The decision highlighted the importance of adherence to the Cenvat Credit Rules and the reversal of credit when necessary, ultimately overturning the department's demands and penalties imposed on the assessee.