2018 (3) TMI 604 - AT - Central Excise

CENVAT credit - common inputs used in the manufacture of both dutiable and exempted final products - Rule 6 (3) (b) of Cenvat Credit Rules 2002/2004 - main argument made by the appellant is that the traction motor and vacuum circuit motor were subjected to testing in the factory of the appellant; that the main items are part of the larger equipment cleared for the MRTS project; that the activity/ process carried out on these items amount to manufacture and hence for all these reasons, there has been no removal of cenvat credit availed goods as such. Held that - The disputed items namely tractor motors and vacuum circuit breakers are, undoubtly, manufactured in the other factories of the appellants who cleared them on payment of duty to the appellant. Appellant in turn avails cenvat credit on these items - we are not able to identify any process or processes carried out by appellant which bring about lasting or permanent change in the characteristics or functionality of the impugned items. It is also not the claim of the appellant that once the process of testing and inspection is complete, the procured items would no longer be called Traction Motor and Vacuum Circuit Breaker and that they would be influenced by any other nomenclature. The adjudicating authority has correctly analysed various issues involved and has come to a reasoned conclusion that the processes carried out by the appellant will not amount to a manufacturing process. Extended period of limitation - Penalty - Held that - It is not the case that appellant had sought any clarification from the department on whether the manner in which they intend to discharge duty liability on the impugned items was correct as per law. Appellant not only did not disclose the activities done by them on these inputs but at the same time declared the clearances of the items as manufactured products in the monthly returns which is tantamount to misdeclaration and suppression of facts - invocation of extended period of limitation for demand of duty liability is very much in order - penalty also upheld. Appeal dismissed - decided against appellant.

Issues Involved:
1. Whether the process of testing and inspection conducted on the procured items amounts to the process of manufacture in terms of Section 2(f) of the Central Excise Act, 1944.
2. Whether the amount paid at the time of clearance of these inputs in terms of Rule 6(3)(b) of Cenvat Credit Rules, 2002/2004 treating these goods as final products is correct.
3. Whether the demand is time-barred.
4. Whether the imposition of equal penalty is justified.

Issue-wise Detailed Analysis:

1. Process of Testing and Inspection as Manufacture:
The adjudicating authority concluded that the process of quality testing and inspection conducted on the traction motors and vacuum circuit breakers does not constitute a "manufacturing activity" under Section 2(f) of the Central Excise Act, 1944. The authority determined that the goods were cleared 'as such' and not as manufactured products, and thus, the goods remained inputs and not final products. The tribunal upheld this view, noting that the tests performed were to confirm the working condition of the items and did not bring about any lasting or permanent change in the characteristics or functionality of the items. The tribunal also rejected the appellant's reliance on Chapter Note 6 to Section XVI of the Central Excise Tariff Act, stating that the items supplied were already complete and finished goods.

2. Amount Paid Under Rule 6(3)(b) of Cenvat Credit Rules:
The adjudicating authority held that Rule 6(3)(b) applies only when final products manufactured using credit-avail inputs are cleared without payment of duty, not when credit-avail inputs are cleared without undergoing any manufacturing process. The tribunal agreed, stating that the appropriate rule for such situations is Rule 3(4)/3(5) of the Cenvat Credit Rules, 2002/2004. The tribunal upheld the demand for an amount equal to the cenvat credit availed on the goods at the time of clearance from the factory, as the appellant did not comply with the provisions of Rule 3(4)/3(5).

3. Time-Barred Demand:
The tribunal found that the demand was not time-barred. The extended period of limitation was invoked due to the appellant's misdeclaration and suppression of facts. The tribunal noted that the appellant, a large multinational company, attempted to reduce their duty liability through an ingenious modus operandi and did not seek any clarification from the department regarding their duty liability.

4. Imposition of Equal Penalty:
The tribunal upheld the imposition of an equal penalty, noting that the appellant's actions amounted to misdeclaration and suppression of facts. The tribunal found that the extended period of limitation and the imposition of a penalty equal to the duty liability were justified under Rule 13 of the CCR 2002 and Rule 15 of CCR 2004 read with Section 11AC of the Central Excise Act, 1944.

Conclusion:
The tribunal dismissed the appeal, finding no merit in the appellant's arguments. The adjudicating authority's decision to confirm the demand of ?1,88,42,922/- with interest and impose an equal penalty was upheld. The tribunal also noted that the adjudicating authority allowed a set-off of ?1,62,61,504/- already paid by the appellants and demanded only the remaining amount of ?25,81,418/-. The tribunal found no infirmity in this decision.

← Previous Next →