2014 (12) TMI 619 - CGOVT - Central Excise

Denial of rebate claim - original authority rejected the entire rebate claim on the ground that process undertaken by the applicant does not amount to manufacture - CBEC Circular No.927/12/2010-Cx dated 24.6.10 - Retrospective application - Held that - demand of cenvat credit availed cannot sustain for period prior to 24.6.10 i.e. before issuance of the said circular dated 24.6.10. He also confirmed-the demand of cenvat credit availed for period subsequent to date 24.6.10. There is nothing on record nor in the written submission dated 2.9.14 of the department that said-order dated 31.8.12 has been stayed by any higher appellate forum. As such, the legal position as on date is that the process undertaken by the applicant prior to 24.6.10 amounts to manufacture and as such cenvat credit availed by them prior to 24.6.10 was proper and the circular is not applicable retrospectively. Apex Court in H.M.BagsManufacturer Vs Collector of Central Excise 1997 (7) TMI 119 - SUPREME COURT OF INDIA and various subsequent judgements has clearly stipulated that Board s circular can have only prospective effect which is evidently the law of the land. Hence, Government finds that rejection of the rebate claims by the original authority on the sole ground of issue of amounts to manufacture by applying the Boards circular-retrospectively-i.e. prior to 24.6.10 cannot be held sustainable and hence, liable to be set aside. - Decided in favour of assessee.

Issues Involved:
1. Whether the process of pickling and oiling amounts to "manufacture."
2. Applicability of CBEC Circular No. 927/17/2010-CX dated 24.06.2010.
3. Entitlement to rebate claims under Rule 18 of the Central Excise Rules, 2002.
4. Admissibility of Cenvat credit availed on inputs.
5. Principle of consistency in tax treatment.
6. Prospective effect of Board's circulars.

Issue-wise Detailed Analysis:

1. Whether the process of pickling and oiling amounts to "manufacture":
The applicant argued that the processes of slitting, trimming, pickling, and oiling carried out on H.R. Coils amount to "manufacture." They cited technical definitions and industry practices to support their claim. The applicant emphasized that these processes change the nature of the product, making it marketable and thus should be considered as manufacturing under Section 2(f) of the Central Excise Act, 1944. However, the original authority and Commissioner (Appeals) rejected this claim, stating that the processes do not amount to "manufacture" as per subheading Note 3 to Chapter 72 of CETA 1985.

2. Applicability of CBEC Circular No. 927/17/2010-CX dated 24.06.2010:
The applicant contended that the circular, which states that "mere undertaking the process of oiling and pickling as preparatory steps do not amount to manufacture," should not apply retrospectively. The Commissioner of Central Excise, in a separate order dated 31.08.2012, confirmed that the circular is prospective and does not affect the period before its issuance. This was supported by the Supreme Court's ruling in H.M. Bags Manufacturer vs CCE, which stated that Board's circulars have only prospective effect.

3. Entitlement to rebate claims under Rule 18 of the Central Excise Rules, 2002:
The applicant argued that they satisfied all conditions for rebate claims under Rule 18 and Notification No. 19/2004-CE (NT) dated 06.09.2004. They cited several judgments to support their claim that conditions not specified in the notification cannot be imposed by the Department. The original authority rejected the rebate claims based on the non-manufacture argument, which was subsequently overturned by the higher authority, stating that the rebate claims for the period before 24.06.2010 were valid.

4. Admissibility of Cenvat credit availed on inputs:
The applicant argued that the Cenvat credit availed on inputs should not be reversed, even if the process does not amount to manufacture, as long as the duty on the final product is accepted by the Department. This was supported by various judicial pronouncements, including the case of Ajinkya Enterprises, Pune, where it was held that if the duty on the final product is accepted, the Cenvat credit need not be reversed.

5. Principle of consistency in tax treatment:
The applicant emphasized the principle of consistency, arguing that they had been paying duty on the same processes since 1992 for home clearances and since 2003 for export clearances without any objection from the Department. They cited the Supreme Court's decision in Radhasoami Satsang vs. Commissioner of Income Tax, which held that the Department cannot change its stand without any change in the factual position.

6. Prospective effect of Board's circulars:
The applicant argued, and the higher authority confirmed, that the CBEC Circular No. 927/17/2010-CX dated 24.06.2010 cannot be applied retrospectively. The Supreme Court's ruling in H.M. Bags Manufacturer vs CCE and subsequent judgments supported this view, establishing that Board's circulars have only prospective effect.

Conclusion:
The Government set aside the impugned orders and allowed the revision application, confirming that the rejection of rebate claims based on the non-manufacture argument and the retrospective application of the circular was not sustainable. The applicant's rebate claims for the period before 24.06.2010 were upheld, and the principle of consistency and prospective effect of circulars were reinforced.

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