2024 (12) TMI 1453 - HC - Central Excise

Cenvat Credit of duty of inputs which were not used to manufacture a new excisable goods - correctness of disallowing the demand of the Department for Cenvat Credit duty wrongly availed of by the assessee Under Rule 14 of the Cenvat Credit Rules, 2004, on the ground that it is against the tenets of Equity and Justice - HELD THAT - It appears that the process undertaken by the assessee was cutting/slitting of imported CRGO coils of width more than 600mm to the width of less than 600mm. It also emerges from the record that the petitioner has paid more excise duty while clearing the final products under Chapter Heading No. 7226 1100 than the amount of Cenvat Credit availed on the duty paid on import of CRGO coils under Chapter Heading N. 7225 1100. This Court in case of Creative Enterprise 2008 (7) TMI 311 - GUJARAT HIGH COURT has held that ' it is apparent that the respondent has been held to be a manufacturer as defined in section 2 (f) of the Central Excise Act, 1944. The appellate authority has taken into consideration the activities carried on by the respondent assessee. The Tribunal is justified in holding that if the activity of the respondent assessee does not amount to manufacture there can be no question of levy of duty, and if duty is levied, modvat credit cannot be denied by holding that there is no manufacture.' Conclusion - The assessee is entitled to Cenvat Credit in view of the fact that the Revenue has accepted the excise duty paid by the assessee on the clearance of final products, irrespective of the fact, whether it amounts to manufacture or not. The issues decided in favour of the assessee and against the Revenue - appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core legal questions:

Whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Ahmedabad, was correct in allowing the Cenvat Credit of duty on inputs which were not used to manufacture new excisable goods?
Whether the Tribunal was right in law in disallowing the demand of the Department for Cenvat Credit duty wrongly availed by the assessee under Rule 14 of the Cenvat Credit Rules, 2004, on the grounds of equity and justice?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowance of Cenvat Credit for Non-Manufactured Goods

Relevant Legal Framework and Precedents: The case involves interpretation of the Cenvat Credit Rules, 2004, specifically Rule 2(k) defining "input" and Rule 3 regarding eligibility for credit. Precedents include decisions from the Bombay High Court in Ajinkya Enterprises and the Delhi Tribunal in Markwell Paper Plast Pvt. Ltd.
Court's Interpretation and Reasoning: The court relied on the precedent set by the Bombay High Court, which established that if the duty on final products is accepted by the department, the Cenvat credit need not be reversed even if the process does not amount to manufacture.
Key Evidence and Findings: The respondent was engaged in slitting and cutting CRGO coils, which did not amount to manufacture. However, the duty paid on the resultant product was accepted by the department.
Application of Law to Facts: Despite the process not amounting to manufacture, the court found that the acceptance of excise duty by the department on the final product justified the allowance of Cenvat credit.
Treatment of Competing Arguments: The appellant argued that the process did not constitute manufacture and thus did not qualify for Cenvat credit. The court, however, emphasized the department's acceptance of duty as a decisive factor.
Conclusions: The court concluded that the assessee is entitled to Cenvat credit because the excise duty on the final product was accepted by the department, aligning with the principles of equity and justice.

Issue 2: Disallowance of Department's Demand for Cenvat Credit Reversal

Relevant Legal Framework and Precedents: Rule 14 of the Cenvat Credit Rules, 2004, and the principle of equity and justice were central to this issue. The court referenced the Ajinkya Enterprises case to support its reasoning.
Court's Interpretation and Reasoning: The court reasoned that disallowing the Cenvat credit would contradict the tenets of equity and justice, especially since the department accepted the duty paid on the final product.
Key Evidence and Findings: The department had not contested the duty paid on the final product, nor had it informed the assessee that the process did not amount to manufacture.
Application of Law to Facts: The court applied the principle that if the department accepts the duty on the final product, it cannot subsequently deny Cenvat credit on inputs.
Treatment of Competing Arguments: The appellant's argument that the credit was wrongly availed was countered by the court's reliance on the department's acceptance of duty, which negated the need for reversal.
Conclusions: The court upheld the Tribunal's decision to disallow the department's demand for credit reversal, citing the accepted duty payment as a key factor.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The department having accepted the excise duty on the final product cannot be permitted to deny Cenvat credit on the inputs used for the manufacture of the final product on such a technical plea."
Core Principles Established: Acceptance of duty by the department on the final product precludes the denial of Cenvat credit on inputs, even if the process does not constitute manufacture.
Final Determinations on Each Issue: The court ruled in favor of the assessee on both issues, confirming their entitlement to Cenvat credit and dismissing the department's demand for reversal.

In conclusion, the court's judgment underscores the importance of departmental acceptance of duty payments in determining the eligibility for Cenvat credit, aligning with principles of equity and justice, and reinforcing established precedents.

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