2018 (8) TMI 947 - AT - Central Excise

CENVAT Credit - removal of inputs as such in guise of manufacture - payment of duty on removal less then availed on inputs - extended period of limitation - The department observed while comparing the inputs & the final products with the input invoices, that the appellant has paid duty less than the CENVAT credit availed on the inputs - recovery of short duty paid under Rule 14 of CENVAT Credit Rules read with Section 11 A of Central Excise Act, 1944(CEA) alongwith the interest and the proportionate penalty. Held that - In the present case the admitted activity is cutting and silting of CRGO Coils irrespective the Tariff head had been changed but to still to be called as manufacture, the activity has either to be identical or ancillary to the completion of final product or should itself amount to manufacture or should be a process which in relation to the goods specified in third schedule involves packing or re- packing of such goods in a unit container. The main product of appellant, admittedly, is the manufacture of transformer core stack falling under Chapter 85 of CETA 1985 for which the CRGO Coils is the main input. It becomes clear that the unused input if cut into any other form but since is not used in the manufacture of final product of the appellant the same can be nothing more than the clearing of the unused input/ raw material. The appellant has removed the inputs as such and has failed to reverse the equal cenvat credit which has been taken on the said inputs and thus has contravened the provision of Rule 3 (5) of Cenvat Credit Rules, 2004 (CCR) Rule 2004. The appellant rather, while removing the inputs as such was required to pay cenvat credit taken by them. With respect to this show cause notice dated 27.10.2015 the appellant has submitted that the adjudicating authority below has failed to consider the documents of the appellant i.e. Exhibit-F at page no. 155 wherein it has been specifically shown that the cenvat credit availed by the appellant is much less than the duty paid by him. Perusal of the document reflects correctness in the contention of the appellant order under challenge is observed to be silent to this aspect - The matter is remanded back to the Additional Commissioner however for the limited purpose as above i.e. for computation. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Whether the activity of cutting CRGO Coils to a specified size amounts to manufacture under Section 2(f) of the Central Excise Act, 1944.
2. Whether the duty paid by the appellant is more than the Cenvat credit availed by them.
3. Validity of invoking the extended period of limitation for recovery of duty.
4. Correctness of the computation of Cenvat credit availed and duty paid.

Detailed Analysis:

1. Whether the activity of cutting CRGO Coils to a specified size amounts to manufacture under Section 2(f) of the Central Excise Act, 1944:
The Tribunal examined whether the activity of cutting CRGO Coils to a specified size constitutes "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. The definition includes processes incidental or ancillary to the completion of a manufactured product, specified in relation to any goods in the Section or Chapter Notes of the first schedule to the Central Excise Tariff Act, 1985, or involves packing/repacking, labeling/re-labeling, or any other treatment to render the product marketable. The Tribunal concluded that mere cutting and slitting of CRGO Coils, even if it changes the tariff heading, does not amount to manufacture. This conclusion was supported by the Delhi High Court's decision in Faridabad Iron & Steel Traders Association Vs. Union of India, which held that cutting or slitting steel sheets does not create a new article with a distinct character.

2. Whether the duty paid by the appellant is more than the Cenvat credit availed by them:
The Tribunal noted that the appellant admitted to using various grades of CRGO Sheets with varying prices, making it challenging to ascertain if more duty was paid than the Cenvat credit availed. The department's approach of taking the average value for calculating the reversal of Cenvat credit was upheld as reasonable.

3. Validity of invoking the extended period of limitation for recovery of duty:
The Tribunal analyzed the show cause notice dated 24.08.2015, which covered the period from October 2011 to January 2013. The appellant argued that the extended period of limitation should not apply since the department was already aware of the appellant's activities through regular ER-Returns and audits. The Tribunal agreed, stating that the department failed to establish any deliberate act of withholding information by the appellant. The Tribunal referenced the Supreme Court's decision in Nestle India Ltd. Vs. Commissioner of Central Excise, which emphasized that the extended period of limitation requires a conscious or deliberate act of evasion. Consequently, the Tribunal held that the show cause notice dated 24.08.2015 was barred by time and set aside the related order.

4. Correctness of the computation of Cenvat credit availed and duty paid:
Regarding the show cause notice dated 27.10.2015, the appellant contended that the adjudicating authority did not consider the documents showing that the Cenvat credit availed was less than the duty paid. The Tribunal found merit in this argument and observed that the order under challenge did not address this aspect. Therefore, the Tribunal remanded the matter to the Additional Commissioner for a computation of the Cenvat credit availed and the total duty paid to determine if there was any short levy.

Conclusion:
The appeal was allowed in part. The order related to the show cause notice dated 24.08.2015 was set aside as it was barred by time. The matter related to the show cause notice dated 27.10.2015 was remanded for fresh computation. The Tribunal clarified that if the computation shows that the duty paid by the appellant exceeds the Cenvat credit availed, the appellant should receive the consequential benefit.