2024 (12) TMI 346 - AT - Central Excise

Process amounting to manufacture or not - process of slitting and cutting jumbo paper rolls into smaller rolls - admissibility of CENVAT Credit availed by the appellants in both Unit-I and Unit-II - Applicability of Section 11D of the Central Excise Act, 1944 regarding the collection of excise duty. Whether the appellant s activity of slitting/cutting jumbo paper rolls into small paper rolls amounts to manufacture or not? - HELD THAT - In this case, two units under the same management are involved and there is no dispute regarding the use of paper within Unit-I for slitting, lamination, printing and heat-sealing coating. Similarly, there is no dispute regarding process undertaken at Unit-II with regard to slitted paper and payment of duty thereon. Further, there is no dispute regarding process of heat-sealing coating at Unit-I after receipt from Unit-II, payment of duty from Unit-I and CENVAT Credit thereon. The process of slitting of papers in the present case amounts to manufacture since the paper in Unit-II cannot be used in the form it is received from Unit-I because it is required to be slit to the required size to fit into the machines of Unit-II. Further, there is a substantial value addition of raw material and huge investments were made in plant and machinery for slitting and after the process of slitting and cutting is completed, a new and distinct product emerges to which the starting material is not capable of being put or used. It is also found that the Department has never raised any concerns regarding the duty paid on final slit paper. Thus, it is a settled law that once duty on the final products has been accepted by the Department, CENVAT Credit is not deniable even if the activity does not amount to manufacture. CENVAT Credit availed by the appellants in both Unit-I and Unit-II - HELD THAT - Once the Department has accepted the duty of the final products and has not raised the objection, then in that case, the CENVAT Credit is not deniable even if the activity does not amount to manufacture in view of the various decisions relied upon the appellants. Applicability of Section 11D of the Central Excise Act, 1944 regarding the collection of excise duty - HELD THAT - The first condition to invoke Section 11D of the Central Excise Act, 1944 by the Department to demand is not applicable in present case because Section 11D is applicable on the person who is liable to pay duty under Central Excise Act, 1944, whereas in the present case, in the impugned order itself, it has been held that the appellants were not liable to pay duty on slitted paper, therefore, this condition is not satisfied. Second condition that Section 11D is applicable when a person has collected any amount in excess of the duty assessed or determined and paid on any excisable goods under Central Excise Act, 1944; whereas, in the present matter, it is not a case that the appellants have collected any amount in excess of duty assessed or determined. Hence this condition is also not met. The third condition that Section 11D is applicable when the said person has collected amounts from the buyer' of such goods; whereas, in the present case, there is no distinct seller and/or buyer. It is a case of stock transfer to Unit-II within the same entity and there is no sale and consequently there is no buyer from whom amount has been collected representing excise duty. Therefore, this condition is also not satisfied. Accordingly, demand made under Section 11D of Central Excise Act, 1944 is liable to be dropped. The impugned orders are not sustainable in law, therefore, set aside - appeal allowed.

Issues Involved:

1. Whether the process of slitting and cutting jumbo paper rolls into smaller rolls amounts to manufacture.
2. Whether CENVAT Credit availed by the appellants in both Unit-I and Unit-II is sustainable.
3. Applicability of Section 11D of the Central Excise Act, 1944 regarding the collection of excise duty.

Issue-wise Detailed Analysis:

1. Process of Slitting and Cutting as Manufacture:

The primary issue was whether the slitting and cutting of jumbo paper rolls into smaller rolls constituted "manufacture" under Section 2(f) of the Central Excise Act, 1944. The appellants argued that the process involved significant transformation, creating a new and distinct product necessary for further industrial use, thus qualifying as manufacture. The Tribunal agreed, noting that the process resulted in a product with a new identity, use, and market value, and thus amounted to manufacture. The Tribunal distinguished the case from the decision in CCE, New Delhi-I vs. S.R. Tissues Pvt Ltd, emphasizing the functional transformation and necessity of the process for further industrial use.

2. CENVAT Credit Availment:

The Tribunal examined whether the CENVAT Credit availed by the appellants in both units was justified. For Unit-I, the credit was initially denied on the grounds that slitting did not amount to manufacture. However, the Tribunal found that since the duty on the final products was accepted by the Department, the credit could not be denied, even if the activity did not amount to manufacture. For Unit-II, the Tribunal upheld the credit on the basis that duty was paid on both inputs and final products, satisfying the conditions for credit availment. The Tribunal relied on precedents where duty payment on final products justified the credit, even if intermediate processes did not constitute manufacture.

3. Applicability of Section 11D of the Central Excise Act, 1944:

The Tribunal addressed the applicability of Section 11D, which concerns the collection of excess duty from buyers. It concluded that the conditions for invoking Section 11D were not met. The appellants were not liable to pay duty on the slitted paper, as determined in the impugned order, and there was no evidence of excess duty collection. Moreover, the transactions between the units were stock transfers within the same entity, not sales to distinct buyers, nullifying the applicability of Section 11D. Consequently, the demand under Section 11D was deemed unsustainable and was set aside.

Conclusion:

The Tribunal set aside the impugned orders, allowing both appeals with consequential relief. It held that the process of slitting amounted to manufacture, justified the CENVAT Credit availed, and invalidated the demand under Section 11D of the Central Excise Act, 1944.

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