2008 (8) TMI 236 - AT - Central Excise

Denial of Cenvat Credit on the inputs Menthol flakes used in Menthol powder on ground that process of conversion not amounts to manufacture - appellants submits that the appellant exported the final product Menthol powder and claimed rebate since rebate was granted on duty paid on Menthol powder, therefore, credit cannot be denied on Menthol flakes used in the processing of such goods - It is noted that Revisionary Authority Govt. of India accepted sanctioning of rebate and the issue as to whether the process undertaken amounts to manufacture, is not relevant in the present case

Summary

Issues:
1. Disallowance of Cenvat credit on Menthol flakes used in Menthol powder.
2. Imposition of penalty on the appellant.
3. Export rebate claim under Rule 18 of Central Excise Rules, 2002.
4. Determination of whether the conversion of Menthol flakes into Menthol powder amounts to "manufacture."
5. Admissibility of Cenvat credit on Menthol flakes and rebate on the resultant product.

Analysis:
1. The appellant appealed against the Commissioner's order disallowing Cenvat credit on Menthol flakes used in Menthol powder, amounting to a significant sum. The Commissioner held that the process did not amount to "manufacture," thus denying the credit and imposing a penalty. The Revenue also appealed for a penalty under Section 11AC of the Central Excise Act.

2. The appellant contended that the conversion of Menthol flakes into Menthol powder constituted "manufacture," supported by expert reports and previous Tribunal decisions. They highlighted that the Government of India accepted the process as manufacture and that duty was paid on the final product, justifying the credit on inputs.

3. The Revenue, however, argued that the process did not change the essential character of the product, citing Tribunal decisions. They emphasized that the rebate sanctioning process was separate from the Cenvat credit issue.

4. The Tribunal observed that the products fell under the same tariff heading, with purity being the main difference. The Commissioner found that the conversion did not amount to manufacture under the Central Excise Act, thus disallowing the Cenvat credit on the finished product.

5. In reviewing the case, the Tribunal noted that rebate was granted on the duty paid on Menthol powder, indicating that credit on Menthol flakes should not be denied. The Tribunal held that the rebate sanction and the manufacturing aspect were not relevant to the credit issue, ultimately allowing the appeals by the appellant and rejecting the Revenue's appeal.