Case Law Details
C.C.E. & S.T.-Vapi Vs Kris Flexipacks Pvt Ltd (CESTAT Ahmedabad)
Introduction: The Central Excise and Service Tax Appellate Tribunal (CESTAT) Ahmedabad was presented with a case involving the eligibility of Cenvat credit for the recipient of goods when the excise duty on capital goods, namely ‘Engraved Ms Copper Plated Rollers,’ was paid under self-assessment by the supplier. The Department contended that since the capital goods were exempted from excise duty payment, the duty paid cannot be treated as excise duty. Consequently, the recipient should not be eligible for Cenvat credit.
Analysis: The key issue before the tribunal was whether the recipient of goods could avail Cenvat credit when the excise duty on capital goods was self-assessed and paid by the supplier, despite the goods being exempted from duty payment under an unconditional notification. The revenue argued that Cenvat credit is only available for excise duty paid as per Section 3 of the Central Excise Act, 1944, and since the duty was exempted, the supplier should not have paid it.
On the other hand, the respondent contended that the supplier had paid the duty under self-assessment, which was not objected to by the department, and thus, it attained finality. They relied on various judgments stating that once the duty payment is accepted, it cannot be considered not excise duty, and the recipient is entitled to claim Cenvat credit. The appellant also argued that their goods were not exempted, as the exemption was rescinded by a subsequent notification.
Conclusion: After considering the arguments, the CESTAT Ahmedabad ruled in favor of the respondent, upholding the decision of the Learned Commissioner (Appeals). The tribunal held that if the assessment of duty payment by the supplier has been accepted without objection, it cannot be disputed at the recipient’s end for availing Cenvat credit. The court also emphasized that if the department believed the supplier should not have paid the duty, they should have issued a show cause notice for recovery, which was not done. Therefore, the Cenvat credit on the capital goods was legally available to the recipient. This ruling highlights the importance of challenging supplier assessments to claim Cenvat credit appropriately.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The issue involved in the present case is that whether the respondent is entitled for Cenvat credit in respect of Excise Duty paid on capital goods namely ‘Engraved Ms Copper Plated Rollers’ in a case where as per the department, the said Capital Goods were exempted from payment of Central Excise Duty under Notification No. 49/2006-CE dated 30.12.2006. The case of the department is that since the said Capital Goods were exempted from payment of Excise Duty under an unconditional Notification, the supplier was not supposed to pay the duty, whatever duty was paid cannot be treated as Excise Duty in terms of Section 3 of Central Excise Act,1944. Consequently, the respondent cannot take credit of any amount which is not a payment of duty in terms of Section 3, the department also placed reliance on the Circular No. 940/01/2011-CX dated 14.01.2011 though the Adjudicating Authority has denied the Cenvat Credit but Learned Commissioner (Appeal), in appeals filed by the respondent allowed the appeal therefore the present appeal filed by the revenue. The respondent also filed a cross objection.
2. Shri Tara Prakash, Learned Deputy Commissioner (AR), appearing on behalf of the revenue submits that since the capital goods were exempted under Notification No. 49/2006-CE dated 30.12.2006, whatever, duty paid by the supplier cannot be treated as duty whereas the Cenvat credit is available only in respect of Excise duty paid in terms Section 3 of Central Excise Act, 1944. Therefore, the appellant is not eligible for Cenvat credit in this position. The Learned Commissioner (Appeals) has erred in allowing the appeal of the respondent, which deserves to be set aside and revenue’s appeal be allowed.
3. On the other hand Shri Prakash Shah, Learned counsel with Shri Mihir Mehta, Advocate appearing for the respondent at the outset submits that the supplier have made the payment of duty under self-assessment procedure. The said assessment of duty payment was not objected with by the department, therefore, the said assessment attained finality. Once the duty payment has been accepted by the department and no objection was raised, it cannot be said that the duty paid by the supplier is not a duty of excise. he submits that even in case, where the excise duty is admittedly not payable but the supplier of the goods discharge the excise duty and the said payment is not objected, no objection can be raised at the recipient and in this regard he placed reliance on the following judgments:
- Commissioner of Central Excise & Customs vs MDS Switchgear Ltd., 2008 (229) E.L.T. 485 (S.C.)
- Commissioner of Central Ex. & Customs, Surat – III vs Creative Enterprises, 2009 (235) E.L.T. 785 (Guj.). Upheld by Hon’ble Supreme Court in 2009 (243) E.L.T. A120 (S.C.)
- Commissioner of C. Ex., Ahmedabad III vs. Nahar Granites Ltd., 2014 (305) E.L.T. 9 (Guj.)
- Commissioner of Central Excise, Goa vs. Nestle India Ltd., 2012 (275) E.L.T. 49 (Bom.)
- Commissioner of Central Excise, Chennai I vs. CEGAT, Chennai, 2006 (202) E.L.T. 753 (Mad)
- Sunrise Containers Ltd. and Ramesh Pawle vs. C.C.E. & S.T. – Vapi, 2022 (11) TMI 792 – CESTAT Ahmedabad
- Hanon Automotives Systems India Private Limited vs. C.C.E. – Ahmedabd -II, 2022 (7) TMI 10- CESTAT Ahmedabad
- Of C. Ex. & S.T., Jaipur – I vs. DCM Shriram Consolidated Put Ltd. reported in 2017 (349) E.L.T. 326 (Tri – Del.)
- Neuland Laboratories Ltd. vs. Commissioner of C. Ex., Hyderabad – I reported in 2015 (317) E.L.T. 705 (Tri. – Bang.)
- Commissioner of Central Excise, Chandigarh vs. Ranbaxy Labs Ltd. reported in 2006 (203) E.L.T. 213 (P & H)
- GTL Infrastructure Ltd. vs. Commissioner of Central Excise, Mumbai reported in 2016 (45) S.T.R. 389 (Tri. – Mumbai)
3.1 Without prejudice he also submits that appellants goods are not exempted, as the exemption was rescinded vide Notification No.19/1996-CE dated 23.07.1996 by the changes as per the Union Budget of 1996-97. For this reason also the entire allegation of the department is incorrect. Hence the credit on that count also cannot be denied.
3.2 He further submits that the recipient of the goods is entitled to avail Cenvat credit of the duty paid by the supplier manufacturer as long as it is not proved that the duty paid by the supplier manufacturer was refunded to them. In this support he placed reliance on following judgment:
- Commissioner of C. Ex., Vadodara – I vs. Hylite Cables, 2007 (212) E.L.T. 284 (Tri.- Ahmd.)
- Evergreen Engineering Co. Pvt. Ltd. vs Commissioner of C. ex., Mumbai reported in 2007 (215) E.L.T. 134 (Tri. – Mumbai)
3.3 He further submits that the Show Cause Notice for the period of October-2008 to July-2012 was issued on 09.05.2013 and a major part of the demand is beyond one year, which is hit by limitation, as there is no suppression of fact on the part of the respondent. On this ground also a major amount that is within the extended period, the demand of Cenvat credit is not sustainable.
4. We have carefully considered the submission made by both the sides and perused the records. We find that the case can be decided on the first issue assuming the Capital Goods received by the appellant is exempted at the suppliers and we find there is no dispute on the fact that the supplier are registered with Central Excise, they have duly discharged the payment of Excise duty, they have issued invoices and filed their returns to their Jurisdiction Central Excise Officer. The Jurisdictional Central Excise officer of supplier has not whisper a word about alleged wrong assessment of duty. The department had jolly well accepted the Act of the supplier that is payment of Excise Duty. The self-assessment of payment of excise duty has attained finality as no objection was raised by the department against the supplier. Therefore, rightly or wrongly, if the assessment at the supplier’s end has been accepted and no objection was raised, the same cannot be disputed at the recipient of goods for availment of Cenvat credit by the recipient. Since, the payment of duty has been assessed and the same was not challenged the duty was paid by the supplier is in terms of Section 3 of Central Excise Act, 1944 and this duty is clearly, legally available as Cenvat credit to the recipient.
4.1 Moreover, if the department is of the view that the supplier was not supposed to pay the duty in such case, the jurisdiction Officer at supplier end should have issued a Show Cause Notice for recovery of such amount under Section 11D of Central Excise Act, 1944, which was not done by the department. This further reinforce the claim of the respondent about their Cenvat credit. This issue has been considered time and again in various judgments:
(a) In the case of MDS switchgear Ltd, the Hon’ble Supreme Court has passed the following order:
“Revenue is aggrieved against the order passed by the Customs, Excise & Gold (Control) Appellate Tribunal (for short, ‘the Tribunal’) whereby and where under the Tribunal has reversed the order-in-original passed by the Commissioner of Central Excise holding that the process followed by the Revenue from the issue of show cause notice to the determination of the liability is not based on relevant law.
2. M/s. MDS Switchgear Ltd., D-4, MIDC, Jalgaon (hereinafter referred to as ‘the assessee’) and M/s. MDS Switchgear Ltd., A-2, MIDC, Malegaon Village, Sinnar (hereinafter referred to as ‘the supplier’) are the sister concerns and are engaged in the manufacture of circuit-breakers falling under Chapter Heading No. 85 of Central Excise Tariff Act, 1985. They were also availing of Modvat facility under the Central Excise Rules, 1944 (for short, ‘the Rules’)
3. The assessee was receiving ‘tripstar MCB’s single pole’ of various configurations from their unit at Sinnar in semi-finished condition. After carrying out certain operation, they have cleared the goods at lower value than the landing cost of semifinished received from their unit, viz., MDS Switchgear, Malegaon, Sinnar. The Revenue, after a detailed verification of record, came to the conclusion that the cost of semi-finished goods supplied by their sister concern is arrived at by adding the raw material cost, direct/indirect labour cost, average overheads, notional profit and Modvat element. Further, the cost so arrived is rounded off to the next higher figure, i.e., for item Code No. T161B06S, the cost of Rs. 56.68 has been rounded off to Rs. 60/- whereas the assessable value declared by the assessee is ranging between Rs. 45.20 to 52.47.
4. The Revenue issued a show cause notice dated 4-11-1999 to the assessee being of the opinion that they have deliberately entered into practice of raising value of semi-finished goods by adding Modvat element and rounding off the value to higher figure so as to pass on the excess Modvat credit. The said notice was, thus, issued to show cause as to why Modvat credit amounting to Rs. 13,08,701/- should not be disallowed under Rule 57-I of the Rules read with proviso to Section 11A(1) of the Central Excise Act, 1944 and to show cause as to why interest and penalty should not be levied and as to why plant, machinery, building etc. should not be confiscated.
5. By the order-in-original dated 30th October 2000, the Commissioner of Central Excise & Customs, Aurangabad confirmed the demand of Rs. 13,08,701/-under Section 11A of the Act and imposed a penalty equivalent to the amount of duty under Section 11AC of the Act and also a penalty of Rs. 1,00,000/- under Rule 173Q of the Rules. Recovery of interest under Section 11AB of the Act was also ordered.
6. Aggrieved by the above order-in-original, the assessee preferred an appeal before the Tribunal which has been accepted by the impugned order. Revenue, being aggrieved, has filed the present appeal.
7. The Tribunal has come to the conclusion that in fact there was no loss of revenue. It accepted the appeal by recording the following reasons :
“Reasons given by the appellants for the alleged inflation of the value of the intermediate goods are logical. What was required of the Commissioner was to examine the quantum of the loading of the assessable value by the Modvat credit on the earlier inputs. That exercise has nowhere been done. If the department was of the opinion that the value of the final product was depressed, then they could have charged the Jalgaon unit with under-invoicing of their product. That has also not been done. The valuation as given by the Sinnar unit was duly approved by the department and the payment of duty was also duly accepted. We find absolutely no substance in the attempt of the learned Commissioner to convert a part of the duty so paid into ‘deposit of duty’. There is no legal basis for such presumption. The rules entitled the receipt manufacturer to avail of the benefit of the duty paid by the supplier manufacturer. A quantum of duty already determined by the jurisdictional officers of the supplier unit cannot be contested or challenged by the officers in charge of recipient unit *2000 (38) RLT 179+.”
8. Counsel appearing for the Revenue could not assail any of the findings recorded by the Tribunal.
9. That being the position, we agree with the view taken by the Tribunal and find no merit in these appeals which are dismissed leaving the parties to bear their own costs.”
(b) The Hon’ble Gujarat High Court dealing with the identical issue in the case of Creative Enterprises (Supra) passed the following order:
“Originally when the appeal was filed, the following question was proposed by appellant-revenue.
(a) Whether in the facts and circumstances of the case, the Tribunal is justified in holding that the respondent could have availed of Modvat credit in respect of the goods which could not undergo the process of manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944 and in respect whereof, the respondent-assessee had paid duty on its own though not required under the law to pay?
The same was subsequently re-framed and the re-framed question reads as under :
(1) Whether, in the facts and circumstances of the case, the tribunal is justified in granting benefit of Modvat credit despite the final product not being as a result of activity of manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944?
2. Heard Mr. H.C. Buch, learned Additional Standing Counsel for the appellant-revenue. The learned counsel has read extensively from the show cause notice and the order made by the adjudicating authority to contend that the respondent was not a manufacturer but was merely an agent of Dr. Beck & Company (I) Limited. It was submitted that in the circumstances, in absence of any independent manufacture by the respondent, there was no question of the respondent being entitled to Modvat credit under Rule 57-I(1)(iii) of the Central Excise Rules, 1944.
That the Tribunal had erroneously placed reliance on its own decision in case of the respondent assessee despite the fact that the said order of Tribunal dated 28-102003 had been challenged by way of Tax Appeal Stamp No. 815 of 2004. The learned counsel has also placed reliance on the Apex Court order in case of Thiagaraja Engineering Enterprises v. Assistant Collector of Central Excise, 1996 (88) E.L.T. 312 (S.C.) = (1997) 10 SCC 241.
3. Against the order made by the adjudicating authority, the respondent assessee carried the matter in appeal and the first appellate authority allowed the appeal after recording following facts.
4. I have examined the records of the case and the submissions made in memorandum of appeal as well as at the time of personal hearing. The issue for determination is whether the activity of re-packing from bulk packs to lower packs amounts to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944 or not. I find that the appellant has received “Elmo Luft 1A” falling under CSH No. 3208.40 in bulk packs from Dr. Bex & Co. (I) Ltd. and with the help of special purpose machines prepared small marketable packages and cleared the same on payment of duty under cover of invoice. The department had granted the C.Ex., registration to the appellant. In the present case, I find that the appellant had received the goods in bulk, carried out testing/ inspection, packed in smaller containers with automatic machinery, followed the rules and procedure strictly and cleared the goods on payment of duty. The expression ‘manufacturer’ has been defined in Section 2(f) of the C. Ex. Act, 1944, according to which it includes any process-
(i) Incidental or ancillary to the completion of a manufactured product, and
(ii) which is specified in relation to any goods in the Section of Chapter Notes of the Schedule to the Central Excise Act, 1985 as amounting to manufacture.
The aforesaid definition endows a wider content to the expression ‘manufacture’ as several process which would not ordinarily be understood as amounting to manufacture are specifically included therein, held by the Apex Court in the cases of Prestige Engg. (I) Ltd. v. Collector – 1994 (73) E.L.T. 497 (S.C.) and Collr. v. S.D. Fine Chemicals P. Ltd. – 1995 (77) E.L.T. 49 (S.C.). In the appellant’s case, though the process involved is of repacking, but repacking with conscious and specific end-use in view. In other words, repacking makes the products marketable. In the cases of J.K. Synthetics Ltd. v. Collector – 1998 E.L.T. 310 (T) and Ponds India Ltd. v. Collector – 1993 (63) E.L.T. 3 (Mad.), it is held that “Manufacturing process continues till the article is put in suitable packaging to smaller packages. I find that the appellant had availed Modvat credit of Rs. 1,70,53,294.00 on the goods received in bulk packs whereas the appellant paid excise duty amounting to Rs. 1,95,03,939.00 on the final product i.e. the re-packed goods in small packs. Accordingly, the process has to be treated as amounting to manufacture.
5. With regard to Modvat credit on duty paid inputs, I find that the appellant has received duty paid raw materials, the said raw material has been received in the factory and were utilized in the manufacture of final products. In view of this and considering the position as indicated above, I set aside the impugned order and allow the Modvat credit of Rs. 1,70,53,294.00. I also set aside the penalty of Rs. 5,00,000/- and demand of interest under Section 11AB of the Central Excise Act, 1944.
4. The Tribunal in the impugned order after recording facts in paragraph No. 2 of its order has noted that in assessee’s own case in respect of same issue, for an earlier period, it was held by Tribunal that the assessee cannot be denied modvat credit by observing as under :
4. The learned Advocate appearing on behalf of the respondents submits that in respect of the same issue and in the same assessee’s case, the Tribunal has held that the assessee cannot be denied the Modvat credit. Vide final order No. CB/470/03-WZB dated 28-10-2003, the Tribunal held as under:-
“We have perused the records and have considered the submissions made by both sides. The present order is clearly unjust and cannot be allowed to stand. The appellants are right in their contention that the finding regarding manufacture applies equally to levy of duty as well as eligibility to Modvat credit. It there was no manufacture, there could be no payment of duty also. There is no dispute that the appellants had paid a higher amount of duty on the goods than the credit taken. If the credit taken was not eligible, what was required was only to adjust the duty paid against that credit.”
5. It is necessary to take note of the fact, to complete narration of facts, that the earlier order of Tribunal was challenged by way of Tax Appeal Stamp No. 815 of 2004 which came to be disposed of on 20-7-2004 for non-removal of office objections. Till date, no steps have been taken to have the said appeal restored to file.
6. When one goes through the order of the first appellate authority, 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.
7. In the aforesaid set of facts and circumstances of the case in light of concurrent findings of fact recorded after appreciating the evidence on record by both Commissioner (Appeals) and the Tribunal, no question of law, much less a substantial question of law, arises out of impugned order of Tribunal. The appeal is accordingly dismissed.”
4.2 The above judgment of Hon’ble Gujarat High Court has been affirmed by the Hon’ble Supreme Court, reported at Commissioner of Central Excise & Customs, Surat-III vs. Creative Enterprises 2009 (243) E.L.T. A120 (S.C.). There are many more judgments passed on this issue, which is directly on the issue in hand. According to which, even though the payment of duty is disputed, unless and until, any action for challenging the assessment of the supplier is taken, Cenvat Credit at the recipient end cannot be disputed, on the ground that the supplier was not supposed to pay duty, may be for various reasons that either the goods is not amount to manufacture, or exempted etc.
4.3 In view of the above legal position, we are of the clear view that the Learned Commissioner (Appeals) has rightly allowed the Cenvat credit on capital goods to the respondent. Hence, the order of the Learned Commissioner is absolutely legal and correct, which does not require any interference. Accordingly, the same is upheld.
5. Revenue’s appeals are dismissed. Cross Objection filed by the respondent also stands dispose of.
(Pronounced in the open court on 21.07.2023)
