Case Law Details
No need to reverse Cenvat credit availed of duty paid on HR coils/sheets for discharging duty on HR slitted and pickled coils on dispute whether slitting and pickling is a manufacturing activity under Section 2(f) of the Central Excise Act, 1944
Asian Colour Coated Ispat Ltd. (the Appellant) was engaged in the process of slitting and pickling of HR coils/ sheets (the activity). They availed Cenvat credit of Rs. 37 crores of the duty paid on HR coils/sheets and discharged Excise duty amounting to Rs. 42 crores on the HR slitted and pickled coils.
The Commissioner of Central Excise, Delhi alleged that the activity undertaken does not amount to manufacture and hence the Appellant was not entitled to avail Cenvat credit on the alleged inputs.Accordingly, a demand of Rs.37.04 crores was confirmed along with imposition of an equivalent amount of penalty. Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Delhi.
The Revenue adverted to the provisions of Section 5B of the Central Excise Act, 1944 (“the Excise Act”) and submitted that since notification has not been issued in respect of the activity, Cenvat credit cannot be allowed. Reliance was further placed upon the Circular No. 911/1/2010 – CX dated January 14, 2010, Circular No. 940/1/2011 – CX dated January 14, 2011.
In the CESTAT, there was conflict of views between the Hon’ble Members.
The Hon’ble Member (J), inter alia, observed that there is no quarrel about the proposition that the Delhi High Court in the case of Faridabad Iron & Steel Traders Association [2003-TIOL-79-HC-DEL-CX] (“Steel Traders case”) has held that the activities of cutting or slitting of steel sheet in coil is a non-manufacturing activity. However, adverting to the plethora of decisions wherein it is held that “By utilization of credit for payment of duty which was not required to be paid, credit was effectively reversed and Revenue cannot once again ask for reversal of credit”, the Member (J) allowed the appeal with consequential relief.
In the matter of the reference made to Section 5B of the Excise Act and various Circulars, the Hon’ble Member (J) observed that if the Appellant does not approach the Central Government, the same cannot stop him from pursuing the legal remedy before the Courts.
On the other hand, the Hon’ble Member (T), inter alia, held that the Appellants cannot be allowed to circumvent the legal position and presume an activity as manufacture and avail Cenvat credit on inputs forcibly and pay duty on finished goods not required to be paid under the law and then pass the credit to the buyer. Holding that there is no question of granting input credit against such manufacture, the Hon’ble Member (T) upheld and confirmed the demand but reduced the amount of penalty to Rs.5 crore.
Consequently, the matter was referred to the Third Member for a Majority view.
The Hon’ble Third Member allowed the appeal and held as under:
- Decision given in Steel Traders case was only in respect of the process of cutting or slitting of steel coils to the required sizes as no new commodity and distinct article having distinct name, character and use has emergedand the excisability of pickling process has not been examined since it was not in dispute;
- The process of pickling involves treatment of the HR sheets/ coils by solution of acids and chemicals to remove surface defects and obtain a sheet with smooth surface;
- In Heading No.7208 of the Central Excise Tariff Act, 1985, there is separate sub-heading for HR coils subjected to the process of pickling and probably because of this, the Appellant were under impression that this process amounts to manufacture, and paid duty in respect of this process;
- Since there is no judgment of any High Court or Apex Court on the specific issue as to whether the HR coils subjected to the process of slitting as well as pickling would amount to manufacture, the provisions of Section 5B of the Excise Act are not attracted.
- Even if it is accepted that the activity does not amount to manufacture, it amounts to saying that the Appellant have cleared the Cenvat credit availed inputs as such and this is something which is not prohibited, if at the time of removal of Cenvat credit availed inputs, in terms of the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004, an amount equal to the Cenvat credit availed is paid under an invoice issued under Rule 9 of the Central Excise Rules, 2002;
- Since the amount paid on the clearance of pickled HR sheets is more than the Cenvat credit availed, the Cenvat credit availed stands more than reversed and there is no need to recover the same again.
Hence, the matter was decided in favour of the Appellant with majority view.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
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Dear Sir, same sort of dispute is going on in case of Bright Bar manufacturing. They are disallowing cenvat no matter what supportive we give. THey have kind adopted a propaganda to disallow credit on Ineligible drawing bright bar activity. What should we do? If you could help. Thanks