2024 (2) TMI 1018 - AT - Central Excise

Denial of CENVAT Credit - process amounting to manufacture or not - goods received from Unit-I (and cleared to Unit-II) required manufacturing activity or not - whether the demand raised alleging that the credit availed by the appellant is ineligible for the reason that there is no manufacturing process undertaken by the appellant on goods received from Unit I and cleared by them is sustainable or not? - HELD THAT - It is an undisputed fact that the appellant has cleared all goods from unit 2 by payment of duty. When the department has collected duty on the finished products, the credit availed on the inputs cannot be denied alleging that the activity does not amount to manufacture. This issue is settled by the decisions in the case of Ajinkya Enterprises 2012 (7) TMI 141 - BOMBAY HIGH COURT wherein the Hon ble High Court of Bombay held CENVAT credit availed need not be reversed even if the activity does not amount to manufacture. In the case of M/s. R K Packaging Vs. CCE, Mumbai 2019 (3) TMI 1500 - CESTAT MUMBAI , the issue considered was whether the credit availed has to be reversed when the activity is alleged to be not manufacture. The demand was set aside by the Tribunal following the decision of the Hon ble High Court of Bombay in Ajinkya Enterprises. The demand cannot sustain and requires to be set aside. The impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Eligibility of CENVAT credit on goods received from Unit I.
2. Allegation of non-manufacturing activities by the appellant.
3. Invocation of extended period under Section 11A of the Central Excise Act, 1944.
4. Payment of duty and its acceptance by the department.

Summary:

Eligibility of CENVAT Credit on Goods Received from Unit I:
The appellant, holding Central Excise Registration, procured goods from other vendors and Unit I, repacked them, and affixed MRP before clearance. However, goods from Unit I were cleared as such without any further processing. The department contended that the goods received from Unit I did not qualify as "input" since they did not undergo any manufacturing activities like packing, repacking, or labeling, making the appellant ineligible for CENVAT credit on these goods.

Allegation of Non-Manufacturing Activities:
The department argued that the goods from Unit I were already marketable and did not undergo any process that would confer marketability attributes as per Section 2(f)(iii) of the Central Excise Act, 1944. Hence, the appellant was not eligible to avail CENVAT credit on these goods. The appellant countered that they had paid duty on all clearances, and the department had accepted these payments, thus making them eligible for the credit.

Invocation of Extended Period Under Section 11A:
The department alleged that the appellant suppressed facts regarding the logistics purpose of goods received from Unit I, invoking the extended period under Section 11A/11A(5) of the Central Excise Act, 1944. The appellant argued that there was no intention to evade duty as they had paid the duty and disclosed all details in the ER I returns.

Payment of Duty and Its Acceptance by the Department:
The appellant contended that every piece of clutch cleared from Unit II was duly assessed and cleared on payment of duty, which was accepted by the department without demur. The self-assessed duty was accepted, and the assessment was not set aside by any legal process. The appellant relied on various judicial decisions, including Ajinkya Enterprises and Creative Enterprises, arguing that once the duty on final products is accepted, the CENVAT credit availed need not be reversed even if the activity does not amount to manufacture.

Conclusion:
The Tribunal, after considering the facts, evidence, and following judicial precedents, concluded that the demand raised by the department could not sustain. The impugned order was set aside, and the appeal was allowed with consequential reliefs, if any.