2024 (12) TMI 668 - AT - Central Excise

Process amounting to manufacture or not - process of coating uncoated paper - denial of CENVAT credit availed by the appellants when tax (duty) itself was not payable - impugned order exceeded the scope of the Show Cause Notices or not - interest and penalties. HELD THAT - There is no discussion in the Show Cause Notice on the unavailability of CENVAT credit to the appellant. Utilization of CENVAT credit was not disputed by the Department at any given point of time. There is a reference while recording the statement of Shri D.N. Ram, Deputy Manager (Excise) and Authorized Signatory of the appellant, as to why the appellants were taking full CENVAT credit on those inputs which are used in the goods which they claim as not amounting to manufacture, there is no discussion in the Show Cause Notice as to why the appellants are not eligible to avail credit and there is no proposal to deny the availment of CENVAT credit to the appellants. Interestingly, instead of countering the submissions of the appellant and instead of highlighting any allegations in the SCN, on the issue of inadmissibility of credit, Commissioner observes that this response from the noticee only blandly refutes the allegation of SCNs but does not present any cogent legal argument in support of the contention that the noticee was eligible to take the credit and use it for the purpose for which it actually got used; on the other hand, the reply makes incorrect assertions; it is incorrect for the noticee to state that the SCNs have no alleged that the CENVAT has been incorrectly taken; the SCNs have made the point that the CENVAT has been incorrectly taken and utilized and have raised a demand under Sec 11A accordingly. There is no reference to Rule 14 which empowers the Department to recover CENVAT credit wrongly taken or erroneously refunded. The entire tone of the Show Cause Notice was to recover the duty paid on the finished goods utilizing the CENVAT credit. This being the position, it is correct on the part of the appellants to say that the impugned order has travelled beyond the Show Cause Notice. When the duty was not payable on the final products cleared by the appellants, it is immaterial whether such duty was paid through cash or by CENVAT credit - the Show Cause Notice does not refer to Rule 14 of CENVAT Credit Rules and does not even speak the language of the Rule that such and such amount of credit is not admissible to the appellants. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:

1. Whether the process of coating uncoated paper amounts to manufacture and if duty is payable.
2. Whether the appellants correctly utilized CENVAT credit for duty payment on final products.
3. Whether the impugned order exceeded the scope of the Show Cause Notices.
4. Whether the appellants are liable for penalties and interest under the Central Excise Rules and Act.

Issue-wise Detailed Analysis:

1. Process of Coating and Manufacture:

The appellants, engaged in the coating of uncoated paper, contended that this process does not amount to manufacture, based on the CESTAT decision in the Pitambar Coated Paper Ltd. case. The Department initially disagreed, requiring the appellants to continue paying duty, which was later challenged and upheld by the Hon'ble Supreme Court, confirming that the coating process does not constitute manufacture. Consequently, no duty was payable by the appellants, aligning with the Supreme Court's ruling.

2. Utilization of CENVAT Credit:

The appellants utilized CENVAT credit for duty payments on final products, arguing that since the credit was lawfully availed, its utilization for duty payment was legitimate. The Department challenged this, asserting that since the final products were exempt, duty should not have been paid using CENVAT credit. The appellants maintained that the Department never disputed the availment of credit itself, only its cross-utilization, which is permissible without a one-to-one correlation between inputs and final products.

3. Scope of Show Cause Notices:

The appellants argued that the impugned order went beyond the Show Cause Notices, which did not propose denying input tax credit. The Department's focus was on cross-utilization rather than the availability of credit. The Tribunal found that the Show Cause Notices did not explicitly challenge the eligibility for CENVAT credit, thus the impugned order exceeded its scope by addressing issues not raised in the notices.

4. Liability for Penalties and Interest:

The Department sought to impose penalties and interest, arguing irregular utilization of CENVAT credit. However, the Tribunal noted the absence of allegations in the Show Cause Notices regarding incorrect credit availment. The Tribunal emphasized that without disputing the availment of credit, demanding repayment of duty paid through CENVAT credit contradicts the Supreme Court's ruling. The Tribunal concluded that the impugned order lacked a basis in the Show Cause Notices, rendering the penalties and interest claims unsustainable.

Conclusion:

The Tribunal allowed the appeal, finding that the appellants were not liable for duty on the coated paper as the process did not amount to manufacture. The utilization of CENVAT credit was deemed proper, and the impugned order was found to have exceeded the scope of the Show Cause Notices. Consequently, the demand for duty repayment through cash, penalties, and interest was not upheld.