2016 (11) TMI 140 - AT - Central Excise

Process of separating valuable mineral sands from ordinary sea sand - whether the process amounts to manufacture or not? - Held that - at the end of this process the chemical structure of the one remained the same; there was no crystallographic transformation and hence the process will not amount to manufacture - reliance placed on the decision of India Rare Earth Ltd. Vs. Commissioner 2001 (9) TMI 167 - CEGAT, KOLKATA where it was held that similar process does not amount to manufacture. CENVAT - whether CENVAT Credit already utilized for payment of duty on final products can be denied or required to be reversed? - Held that - there are a plethora of judgements which have ruled that once duty on final product is accepted by Department, CENVAT credit cannot be reversed even if said activity does not amount to manufacture. Lapse of unutilised credit - Held that - The provision of Rule 11 (3) would meet situations in which there is different periods of exigibility to excise duty and non-exigibility to duty. The law is thus very clear on this point, hence unutilised credit in the appellant s case cannot be allowed for any further payment of duty and will necessarily lapse. So the claim of the appellant that the CENVAT credit lying in their balance, which was taken when the process was not manufacture, cannot be allowed to pay duty for finished products after 2011 when the process is treated as manufacture as per new Chapter Notes. Levy of penalty u/r 15 of CENVAT Credit Rules 2004 - Held that - penalty set aside. Appeal disposed off - CENVAT credit of Re availed and utilised for payment of duty on domestic and export clearances is non-recoverable - CENVAT Credit of ₹ 1,41,58,285/- lying in balance is CENVAT Credit account as on 31-03-2011 shall lapse - Penalty of ₹ 2000/- imposed by adjudicating authority is set aside - appeal partly allowed in favor of appellant.

Issues Involved:
1. Whether the process carried out by the appellants results in the manufacture of an excisable product.
2. If there is no manufacturing involved, whether CENVAT Credit already utilized for payment of duty on final products can be denied or required to be reversed.
3. Whether the credit lying in balance will lapse after such payment of duty through CENVAT account.

Issue-Wise Detailed Analysis:

1. Whether the process carried out by the appellants results in the manufacture of an excisable product:

The appellant is involved in separating valuable mineral sands from ordinary sea sand, resulting in products like rutile concentrate, ilmenite concentrate, zircon concentrate/semi concentrate, garnet concentrate, and silimanite concentrate. The process includes feed preparation, pre-concentration, and mineral separation stages. The adjudicating authority concluded that the chemical structure of the minerals remained unchanged, and there was no crystallographic transformation, thus the process does not amount to manufacture. This conclusion aligns with the Tribunal's decision in Indian Rare Earths Ltd. v. CCE [2002(139) ELT 352 (Tri.)], which held that similar processes did not constitute manufacturing. The Tribunal reiterated this stance in Kerala Minerals & Metals Ltd. v. CCE Kochi [2007 (214) ELT 556 (Tri-Bang)], confirming that mere separation of minerals from beach sand does not result in a new product.

2. If there is no manufacturing involved, whether CENVAT Credit already utilized for payment of duty on final products can be denied or required to be reversed:

The appellant had availed CENVAT Credit on inputs, capital goods, and input services and utilized it for payment of duty on both domestic and export clearances. The adjudicating authority acknowledged that once the duty on the final product is accepted by the Department, CENVAT Credit cannot be reversed even if the activity does not amount to manufacture. This is supported by numerous judgments, and the authority conceded that the CENVAT credit of ?4,59,05,807/- availed and utilized by the appellant is not recoverable. However, this aspect was not explicitly mentioned in the order portion due to oversight.

3. Whether the credit lying in balance will lapse after such payment of duty through CENVAT account:

The appellant argued that the utilization of CENVAT Credit was not questioned by the department and that there is no provision in law for the lapsing of credit applicable to their case. However, the adjudicating authority and the Tribunal found this contention incorrect. According to Rule 11(3) of the CENVAT Credit Rules 2004, if a final product is exempted from duty, the unutilized credit must lapse and cannot be used for any further payment of duty. The Board's circular no 911/01/2010CX dated 14/01/2010 also supports this position. Therefore, the order holding that the CENVAT credit of ?1,41,58,285/- lying in balance should lapse is correct in law.

Conclusion:

The Tribunal concluded that the appellant's activity during the relevant period does not amount to manufacture. The CENVAT credit utilized for payment of duty on domestic and export clearances is not recoverable. However, the unutilized credit lying in balance as on 31-03-2011 must lapse. The penalty of ?2000/- imposed by the adjudicating authority was set aside. The appeal was partly allowed on these terms.

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