2018 (11) TMI 71 - AT - Central Excise

CENVAT Credit - repacking of the sugar in small packs of 1kg/5kg - Manufacture or not - denial of the credit on the ground that such activity of repacking in smaller packs does not amounts to manufacture - Held that - It is not being disputed by the revenue that the smaller packs were being cleared by the appellant on payment of duty, by treating the same as manufactured goods. Tribunal in the case of M/s Asian Colour Coated Ispat Ltd. Vs CCE, Delhi-III 2014 (9) TMI 974 - CESTAT NEW DELHI , by majority order has observed that even if the activity undertaken by an assessee does not amount to manufacture, the credit availed on the inputs used in such final products which stands cleared on payment of duty would still be available to the assessee. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of Cenvat credit on repacking of sugar from bulk packs to small packs.
2. Imposition of penalty on Deputy Manager under Central Excise Rules, 2002.

Analysis:
1. The appellant, engaged in the manufacture of sugar and molasses, repacked sugar from bulk packs to small packs. The Revenue contended that such repacking did not amount to manufacture, leading to denial of Cenvat credit on packing material and inject printer used for repacking. Show cause notices were issued, contested by the appellant, but the Original Adjudicating Authority upheld the demand for denial of credit along with interest and penalties. The Commissioner (Appeals) affirmed this decision, resulting in the present appeals.

2. The Tribunal analyzed the situation after hearing both parties. It noted that the sugar repacked in small packs was accounted for in the stock register under "Quantity manufactured" and sold against invoices with specified duty paid using Cenvat credit. The Revenue's argument against granting credit was that repacking did not constitute manufacture. However, it was acknowledged that the smaller packs were cleared by the appellant after payment of duty, treating them as manufactured goods.

3. Referring to precedents, the Tribunal cited cases where credits were allowed even if the activity did not amount to manufacture, emphasizing that if final products were cleared on payment of duty, the credit should be available. Decisions from various Tribunals and High Courts supported this stance, holding that Cenvat credit should not be denied based on the activity not meeting the definition of manufacture when the final products were cleared with duty paid.

4. In light of the precedents and established legal principles, the Tribunal set aside the impugned order, allowing both appeals with consequential relief. The decisions cited in support of granting Cenvat credit despite the activity not being classified as manufacture were crucial in overturning the earlier decisions that denied the credit. The appeals were allowed on merits, rendering the issue of demand limitation moot.