Sandeep Laminators Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT Chandigarh)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, considered an appeal against the Commissioner’s order dated 30.04.2013, which had disallowed CENVAT credit of ₹36,58,909 availed on inputs from 12.02.2004 onwards under Rules 12/14 of the CENVAT Credit Rules, 2002/2004, ordered its recovery, directed recovery of interest under Section 11AB of the Central Excise Act, 1944, and imposed an equal penalty under Rule 15 of the CENVAT Credit Rules, 2004.
The appellant manufactures plastic laminates under Chapter Heading 3920.38 and pouches under Chapter Heading 3923.90 of the Central Excise Tariff Act, 1985. The Department’s Anti-Evasion Branch found that the appellant procured duty-paid polyester/metallised polyester film and polyethylene film, printed the polyester film, and laminated it with metallised/polyethylene film using adhesive while availing CENVAT credit on the inputs. Statements of the Production Manager and the Director were recorded. Relying on the Supreme Court’s decision in Metlex (I) Pvt. Ltd. Vs CCE, New Delhi, the Department took the view that laminating/metallising duty-paid film did not amount to manufacture as no new and distinct product emerged. Two show cause notices dated 05.01.2006 and 07.12.2006 were issued, resulting in the impugned order disallowing the CENVAT credit along with interest and penalty.
The appellant submitted that it had been paying Central Excise duty on printed laminated polyester films since 1993 and that Board Circular No. 93/75/86-CX-III dated 09.10.1986 treated the process of making lacquered, laminated or metallised films from duty-paid plastic films as manufacture. It contended that only after the Supreme Court’s decision in Metlex (I) Pvt. Ltd. in 2004 was the process held not to amount to manufacture, and that the tariff was amended in 2007 after which the process became manufacture for Central Excise purposes. The appellant argued that the Department’s case was that since the process was not manufacture, the amount paid as Central Excise duty was not duty and therefore CENVAT credit was inadmissible. It also submitted that the first show cause notice demanded CENVAT credit of ₹99,30,054 for the period December 2000 to August 2005, while the second show cause notice dated 07.12.2006 sought Central Excise duty of ₹9,79,983 for November 2005 to January 2006. According to the appellant, the Commissioner travelled beyond the scope of the second show cause notice by confirming CENVAT credit demand instead of duty. The appellant further argued that if the activity did not amount to manufacture, the clearances would amount to removal of inputs as such under the CENVAT Credit Rules, requiring payment of an amount equal to the credit availed, whereas the amount already paid by the appellant exceeded the CENVAT credit taken.
The appellant relied on several Tribunal and High Court decisions, including Markwell Paper Plast Pvt. Ltd. Vs CCE, Noida, which held that where inputs are cleared on payment of duty, such payment amounts to reversal of CENVAT credit even if the activity does not amount to manufacture. It was submitted that this decision had been affirmed by the Delhi High Court and the Allahabad High Court. Reliance was also placed on CCE, Surat Vs Creative Enterprises, upheld by the Supreme Court, and Ajinkya Enterprises Vs CCE, Pune-III, affirmed by the Bombay High Court, along with decisions in Balaji Aluminimum Alloys Pvt. Ltd., CCE & ST Vs J & K.V. Gravita Metals, and Domino Printech India Pvt. Ltd.
The Department supported the findings of the impugned order.
The Tribunal observed that the issue was no longer res integra and had consistently been decided in various Tribunal decisions upheld by the High Courts and the Supreme Court. It noted that the settled position was that where the process undertaken does not amount to manufacture, CENVAT credit remains admissible if the inputs are cleared on payment of duty, since such payment amounts to reversal of the credit availed. Following the ratios of the decisions relied upon, the Tribunal held that the impugned order was not sustainable in law, set it aside, allowed the appeal, and granted consequential relief, if any, in accordance with law.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The present appeal is directed against the impugned order dated 30.04.2013 passed by the Commissioner of Central Excise, Delhi-III whereby the Commissioner has disallowed the CENVAT credit amounting to Rs.36,58,909/- availed by the appellant on inputs during 12.02.2004 onwards and order its recovery under Rules 12/14 of CENVAT Credit Rules, 2002/2004. Learned Commissioner has also ordered for recovery of the interest under Section 11AB of the Central Excise Act, 1944 and also imposed equal penalty under Rule 15 of CENVAT Credit Rules, 2004.
2. Briefly the facts of the present case are that the appellants are engaged in the manufacture of ‘Plastic Laminates’ falling under Chapter sub-Heading No. 3920.38 and its Pouches falling under Chapter sub-Heading No. 3923.90 of the First Schedule to the Central Excise Tariff Act, 1985. These plastic laminates are further used by the buyers for making packing pouches for Pan Masala and Namkeen Snacks etc. The appellants are availing CENVAT credit on capital goods and inputs under Rule 3 of CENVAT Credit Rules, 2004. The anti-Evasion Branch of the Department visited the premises of the appellant and found that the appellant is procuring duty paid Polyester/ Metallised Polyester Film and Polyethylene Film and the polyester film is printed with the help of printing machine and then laminated with Metallised/ Polyethylene film by applying adhesive. The various inputs used in the process of which the CENVAT credit has been availed by the appellant. The anti-Evasion Branch recorded the statements of Shri Pinak Sarkar, Production Manager and Shri Rajesh Goyal, Director of the Company. Thereafter, on the basis of the judgment of the Hon’ble Apex Court in the case of Metlex (I) Pvt. Ltd. Vs CCE, New Delhi reported at 2004 (165) ELT 129 (SC) in which it was held that laminating/ metallising of duty paid film does not amount to manufacture as the product is a film to start with and remains a film after lamination or metallization and no new and distinct products comes into existence. Thereafter, two show-cause notices dated 05.01.2006 and 07.12.2006 were issued to the appellant and after following the due process, the learned Commissioner disallowed the CENVAT credit as mentioned above along with interest and penalty. Hence, the present appeal.
3. Heard both sides and perused the records of the case.
4. Learned Counsel for the appellant submits that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts, the law and the binding judicial precedents. He further submits that the appellants are manufacturer of Printed Laminated Polyester Films and since 1993, they have been paying Central Excise duty on Printed Laminated Polyester Films, that in terms of the Board’s Circular No.93/75/86-CX-III dated 09.10.1986, the process of making lacquered/ laminated/ metalized films from duty paid plain/ bare plastic films would amount to manufacture, that it is only sometime in 2004 that the Hon’ble Apex Court, in the case of Metlex (I) Pvt. Ltd. (supra), held that the process undertaken by the appellant does not amount to manufacture, that the Central Excise Tariff was amended by the Government sometime in 2007 and only from 2007, the appellant’s process became manufacture and thereby attracting Central Excise duty, that the Department’s case against the appellant is that since the process undertaken by them does not amount to manufacture, they would not be entitled for CENVAT credit, as the amount paid by them towards Central Excise duty, is not duty, that it is on this basis CENVAT credit demand of Rs.99,30,054/- has been made along with interest for the period from December 2000 to August 2005 vide show-cause notice dated 05.01.2006, a part of which was confirmed by the Commissioner, that the second demand raised by the show-cause notice dated 07.12.2006 for the period from November 2005 to January 2006 is for demanding Central Excise duty amounting to Rs.9,79,983/-, while during this period as per the Department’s own stand, the process did not amount to manufacture and no duty was payable, that still the Commissioner in the impugned order going beyond the scope of the show-cause notice dated 07.12.2006 has confirmed CENVAT credit demand of the same amount while the show-cause notice dated 07.12.2006 was for demand of duty, that the impugned order, therefore, is not sustainable, that in any case if the process undertaken by the appellant does not amount to manufacture, their activity would amount to clearing the CENVAT credit availed inputs as such which is permitted in terms of the CENVAT Credit Rules, if an amount equal to CENVAT credit availed is paid, while in the appellant’s case, the amount paid is more than the CENVAT credit.
5. Learned Counsel further submits that this issue is no more res integra and has been decided by several Benches of the Tribunal. Learned Counsel relied upon the decision in the case of Markwell Paper Plast Pvt. Ltd. Vs CCE, Noida – 2012 (285) ELT 76 (Tri. Del.) wherein the Tribunal while discussing the admissibility when process undertaken did not amount to manufacture, it has been held that CENVAT credit is admissible if such inputs cleared on payment of duty which would amount to reversal of credit availed. He further submits that the decision of the Tribunal in the case of Markwell Paper Plast Pvt. Ltd. (supra) has been affirmed by the Hon’ble Delhi High Court as reported in 2015 (315) ELT 540. He further submits that the decision of the Tribunal has also been affirmed by the Hon’ble Allahabad High Court as reported in 2018 (9) GSTL 176 and the said order has attained finality because the Department has not challenged the order of the Hon’ble Delhi High Court as well as the order of the Hon’ble Allahabad High Court cited supra. He further submits that this decision of the Tribunal has been consistently followed and it has been held that when the duty paid at the time of clearance which is equal to or higher than the credit availed, the same is to be treated as reversal of credit. Therefore, no further reversal of credit is required as held in the case of CCE, Surat Vs Creative Enterprises – 2009 (235) ELT 785 (Guj.) which was upheld by the Hon’ble Apex Court reported in 2009 (243) ELT A120 (SC) wherein it was held that once duty on final products has been accepted by the Department in the case, CENVAT credit cannot be denied even if the activity does not amount to manufacture. The appellant has also relied upon the decision of the Mumbai Tribunal in the case of Ajinkya Enterprises Vs CCE, Pune-III – 2013 (288) ELT 247 (Tri. Mumbai) wherein identical facts were involved and the Tribunal, after considering the provisions of CENVAT Credit Rules, 2004, has held that if activity does not amount to manufacture, the assessee is required to pay duty equal to credit taken on clearance of input, in that view assessee, as duty paid was more than credit availed, not required to reverse the credit availed by them. He further submits that the Tribunal’s decision in Ajinkya case has been affirmed by the Hon’ble Bombay High Court as reported in 2013 (294) ELT 203. He also relied upon the following decisions wherein also, the Tribunal has followed the earlier decision and the demand of CENVAT credit has been dropped:
- Balaji Aluminimum Alloys Pvt. Ltd. Vs CCE, Delhi-IV – 2019 (365) ELT 551 (Tri. Chan.)
- CCE & ST Vs J & K.V. Gravita Metals – 2020 (372) ELT 172 (Tri. Chan.)
- Domino Printech India Pvt. Ltd. Vs CCE, Delhi-III – 2020 (372) ELT 96 (Tri. Chan.
6. On the other hand, learned Authorized Representative for the Department reiterated the findings of the impugned order.
7. After considering the submissions of both the parties and perusal of the material on record, we find that the issue involved in the present case is no more res integra and has been consistently held by various decisions of the Tribunal, upheld by the Hon’ble Supreme Court and High Court as cited supra wherein it has been held that when process undertaken by the assessee does not amount to manufacture, even then the CENVAT credit is admissible if such inputs are cleared on payment of duty which would amount to reversal of credit availed. In view of the ratios of various decisions cited supra and by following the ratio of the said decisions, we hold that the impugned order is not sustainable in law and therefore, we set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any, as per law.
(Pronounced on 22/02/2024)
