2018 (5) TMI 872 - AT - Central Excise

CENVAT credit - denial for the reason that the goods on which credit were availed were not put to any manufacturing process neither directly or incidentally to the manufacture of the product and they were virtually cleared as such after drying etc. - Held that - in any case, the duty paid on cleared goods being higher than the credits, now alleged to be ineligible by the department cannot be a ground to deny the credit when the appellants have paid duty on the finished products - demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Eligibility of Cenvat credit on certain goods used in manufacturing process

Analysis:

The case involved the appellants, manufacturers of "Refractory Castables" and "High Temperature Bricks", who availed Cenvat credit of excise duty paid on inputs. The issue arose when it was discovered that they had utilized the credit on goods such as Calcium Silica Boards, Anchors, and Electrodes, which the department deemed ineligible for credit. Subsequently, show cause notices (SCNs) were issued, leading to the disallowance of credit, demand for service tax, interest, and penalties by the original authority, a decision upheld by the Commissioner (Appeals), prompting the appeal.

During the hearing, the appellant's counsel cited a previous Tribunal ruling in the appellant's favor on the same issue. The appellant argued that they had paid higher central excise duty on cleared goods, believing the process to constitute manufacturing, justifying their credit availing. They contended that the duty paid on the cleared goods exceeded the allegedly ineligible credit, and their actions did not prejudice revenue. The Tribunal, referencing various legal precedents, including a decision by the Hon'ble Karnataka High Court, emphasized that if the process undertaken by the appellant did not amount to "manufacture," there was no basis for credit reversal or penalty imposition.

Based on the analysis of the facts and legal principles, the Tribunal concluded that the demand for disallowing credit could not be sustained. Consequently, the impugned order disallowing credit, confirming the demand, interest, and penalties was set aside, and the appeal was allowed with any consequential reliefs. The decision highlighted the importance of the nature of the manufacturing process in determining the eligibility of Cenvat credit, emphasizing that if an activity does not amount to "manufacture," the denial of credit is not justified.