2016 (6) TMI 870 - AT - Central Excise

Cenvat Credit - common inputs - Scope of Rule 6(3) - Exempted goods versus non-excisable goods - Levy of penalty - manufacture of dutiable final products as also in the manufacture of H B wires which emerged as a result of drawing of wire and galvanized wire, which has been held to be non-manufacturing activity - Appellant were paying 8% of the value of the same in terms of provisions of Rule 6(3)(b) of Cenvat Credit Rules. - Revenue entertained a view that inasmuch as the appellants final product i.e. galvanized wire and the other wires which emerges by the process of wire drawing are not excisable goods, the provisions of Rule 6(3) (b) of Cenvat Credit Rules is not applicable to them. Held that - Exempted goods are excisable goods, which stand exempted from payment of duty of excise leviable thereon. If no duty of excise is leviable on account of non-manufacture, the question of exemption of same does not arise. As such, goods cannot held to be exempted goods, thus making the applicability of Rule 6(3)(b) as nil. Rule 3 of Central Credit Rules allows a manufacturer or producer of final product, to avail the credit of duty paid on the inputs, which are to be used by them in the manufacture of final product. If there is no manufacturing activity involved, the said Rule debars the availment of credit at the ab initio stage itself. Inasmuch as no manufacturing activity was involved in the present case as neither the wire drawing process nor the galvanization process involved any manufacturing activity, the credit itself was not available to the appellants under the said Rules so as to be further neutralized in terms of Rule 6(3)(b) of the Rules. Appellant is following said procedure after duly intimating the Revenue and seeking their permission, there is no scope for imposition of penalty upon them. - Decided partly in favor of assessee.

Summary

Issues:
Whether the appellant is entitled to avail Cenvat credit on common inputs used in the manufacture of final products and non-dutiable products? Whether the provisions of Rule 6(3)(b) of Cenvat Credit Rules are applicable in this case? Whether the goods are to be considered as exempted goods under Rule 2(d) of Central Excise Rules? Whether the appellant is liable to pay duty on the galvanized wire? Whether the penalty imposed on the appellant is justified?

Analysis:
The appellant, engaged in manufacturing various wires, availed Cenvat credit on common inputs for both dutiable and non-dutiable products. The issue revolved around the applicability of Rule 6(3)(b) of Cenvat Credit Rules to the appellant's situation. The Revenue contended that the final products were not excisable goods, leading to a show cause notice denying the credit availed. The Tribunal examined whether the appellant could claim Cenvat credit for non-manufactured products, considering the Supreme Court's decision on wire drawing and galvanization processes.

The Tribunal acknowledged that the galvanized wire was specified in the Central Excise Tariff, attracting 16% duty. However, the appellant's argument that the goods were excisable despite being non-manufactured raised a crucial question. The Tribunal analyzed Rule 6(3)(b) and emphasized that it applied to exempted products, which necessitated the payment of a specific amount to neutralize Cenvat credit. As the appellant did not pay the full duty of 16% on the galvanized wire, the Tribunal rejected the appellant's interpretation to avoid chaos in tax compliance.

Further, the Tribunal examined Rule 2(d) of Central Excise Rules defining exempted goods as those exempt from excise duty. Since no duty was levied due to the non-manufacturing process, the goods could not be classified as exempted. Additionally, the Tribunal highlighted that Rule 3 of Central Credit Rules restricted credit availment for products involving manufacturing activities. As wire drawing and galvanization did not constitute manufacturing, the appellant was not entitled to credit under these rules.

Despite upholding the denial of Cenvat credit, the Tribunal considered the appellant's reversal of a significant amount at the time of product clearance. The Tribunal directed a verification of this reversal and remanded the matter to the original authority for quantifying the demand accordingly. Moreover, the Tribunal set aside the penalty imposed on the appellant, emphasizing the procedural compliance and permission sought from the Revenue for the credit reversal.

In conclusion, the Tribunal clarified the inapplicability of Cenvat credit rules to non-manufactured products, emphasized the importance of paying full duty on dutiable goods, and highlighted the significance of procedural adherence in tax matters.