2016 (11) TMI 1276 - AT - Central Excise

CENVAT credit - recovery - Subsection 1 of Section 11A of Central Excise Act, 1944 - Held that - the packing of sugar into 1 & 5 kgs pack is done in the factory premises. The goods when brought into such packing division are again entered into RG-I Register and subsequently packed into 1 & 5 kgs packs. The clearance of such goods from factory on payment of a specific rate of duty. The packing material on which Cenvat Credit was availed were used for packing of goods into 1 & 5 kgs. pack within the premises of factory. The ratio of the ruling of Hon ble High Court of Chhattisgarh in the case of Advani Oerlikon Ltd. 2012 (12) TMI 266 - CHATTISGARH HIGH COURT is squarely applicable in the present case where it was held that the item Hot Melt Unit was admittedly used by the assessee while packing their finished goods welding electrodes . Since packing is held to be one of the essential components of the manufacturing process of the finished goods and being in the nature of incidental or/and ancillary to the main manufacturing activity, the assessee in this case was rightly held entitled to claim Modvat credit on the item- Hot Melt Unit treating the same as capital goods under the Rule 57Q ibid for claiming benefit. The packing is activity incidental or/and ancillary to the main manufacturing activity. Therefore, Cenvat Credit of duty paid on inputs used for packing sugar in 1kg & 5 kg packs is admissible to the appellant - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Denial of Cenvat Credit on packing materials used for packing sugar in 1kg and 5kg packs within factory premises.
2. Admissibility of Cenvat Credit as per the definition of inputs in Cenvat Credit Rules.
3. Bar of limitation in the show cause notice dated 06/03/2012.
4. Application of legal precedents regarding packing as an incidental manufacturing activity.

Issue 1: Denial of Cenvat Credit on Packing Materials:
The case involved the denial of Cenvat Credit on packing materials used for packing sugar in 1kg and 5kg packs within the factory premises. The Revenue contended that this activity was post-manufacturing and hence, the Cenvat Credit was inadmissible. The Original Authority upheld the denial, citing that the process of manufacture of sugar was complete when packed in 50kg and 100kg bags, and repacking into smaller packs was post-manufacturing. The Commissioner (Appeals) also rejected the appeal on similar grounds. However, the Tribunal disagreed, emphasizing that packing is an activity incidental to the main manufacturing process. Citing a ruling by the Hon'ble High Court of Chhattisgarh, the Tribunal held that the Cenvat Credit on packing materials used for packing sugar in smaller packs within the factory premises was admissible. Consequently, the impugned Orders-in-Original and Orders-in-Appeals were set aside, and both appeals were allowed.

Issue 2: Admissibility of Cenvat Credit as per Cenvat Credit Rules:
The appellants argued that the denial of Cenvat Credit on packing materials conflicted with the definition of inputs in the Cenvat Credit Rules, which includes goods used as packing material in relation to the manufacture of final products within the factory. Despite this argument, both the Original Authority and the Commissioner (Appeals) upheld the denial of Cenvat Credit. However, the Tribunal, after considering the contentions, ruled in favor of the appellants, emphasizing that the inputs were duty paid, brought into the factory, and used for packing goods before final clearance. The Tribunal held that the Cenvat Credit was indeed admissible as per the definition of inputs in the Cenvat Credit Rules.

Issue 3: Bar of Limitation in Show Cause Notice:
The show cause notice dated 06/03/2012 proposed the recovery of Cenvat Credit and penalties, invoking the proviso to Subsection 1 of Section 11A of the Central Excise Act, 1944. The appellants argued that the notice was hit by the bar of limitation, as the factory was regularly audited, duty was paid on the final product at clearance, and there was no intention to evade duty. However, the Original Authority proceeded with the demand and penalties. The Commissioner (Appeals) also rejected the appeal on similar grounds. Despite these arguments, the Tribunal did not specifically address the limitation issue in its detailed analysis, focusing more on the admissibility of Cenvat Credit and the incidental nature of packing as a manufacturing activity.

Issue 4: Application of Legal Precedents on Packing as Incidental Manufacturing Activity:
The Tribunal extensively discussed legal precedents, including a ruling by the Hon'ble High Court of Chhattisgarh and decisions of the Supreme Court, to establish that packing is an activity incidental or ancillary to the main manufacturing process. By citing relevant judgments, the Tribunal concluded that the Cenvat Credit on duty paid inputs used for packing sugar in 1kg and 5kg packs within the factory premises was indeed admissible. This detailed analysis of legal precedents formed a crucial part of the Tribunal's reasoning in setting aside the impugned Orders-in-Original and Orders-in-Appeals and allowing both appeals with consequential reliefs.

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by the parties, and the Tribunal's detailed reasoning in arriving at its decision.

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