MUMBAI, APRIL 08, 2013: THE appellant is having unit at Dolvi and is engaged in the manufacture of excisable goods viz. H.R.Coils & sponge iron. The appellants have one of their units located at Kamothe which was engaged in the activity of cutting / slitting of H.R.Coils into sheets/plates/strips. The CBEC vide circular No.811/08/2005-CX dated 02.03.05 withdrew its earlier circular dated 7.9.01 wherein it was clarified that the process of cutting or slitting of H.R. coils into sheets/plates/strips would amount to manufacture.

Consequently, Kamothe unit of the appellants surrendered their Central Excise Registration and transferred the unutilized balance credit of Rs. 2,01,49,097/- to their unit situated at Dolvi and the unit at Dolvi availed the aforesaid credit.

Since the appellants did not transfer any stock of inputs as such or in process or the capital goods, the department initiated proceedings against the appellants for contravention of provisions of Rule 10 of the CCR, 2004 and resultantly, the CCE, Raigad disallowed the CENVAT credit of Rs.2,01,49,097/- and imposed equal amount of penalty against Unit at Dolvi and Kamothe respectively.

So, the appellant is before the CESTAT and submits -

+ even after transfer of all inputs, work in progress to Dolvi, the Kamothe unit had an unutilized CENVAT balance of Rs.2,01,49,097/- and which credit had accumulated at Kamothe on account of the fact that the appellants earlier had a factory at Taloja (this unit commenced business on 16.4.2002) and the same was shifted to Kamothe along with unutilized credit balance of Rs, 2,01,49,097/- in April 2005.

+ The credit which had accumulated at the Taloja unit was on account of exports made under Bond from that unit. The unutilized balance lying at Kamothe which was transferred to Dolvi was out of the credit which was transferred to it from Taloja.

+ the denial of credit is solely on the ground that the inputs and capital goods ought to have been transferred which reasoning is flawed as Rule 10(3) uses the expression inputs or capital goods and not “and” capital goods.

+ Kamothe unit had not availed any CENVAT credit on capital goods since they were taken on lease, hence the question of shifting the capital goods did not arise; disallowing the credit on the premise that capital goods had not been transferred is also beyond the scope of the allegations leveled in the notice.

The Revenue representative inter alia had the following to say -

+ after passing on the credit available on the inputs/input in process to their unit at Dolvi the appellants are left with the balance of Rs. 2,01,49,097/- in their credit account which credit was transferred by the unit at Taloja to their unit at Kamothe on the closure of the unit at Taloja.

+ since the credit has been transferred to their Dolvi unit without transferring any input, the same is in clear violation of sub-rule (1) read with sub-rule (3) of Rule 10 of CCR, 2004;

+ the activity of cutting and slitting of HR Coils into HR sheets/strips has been considered by the High Court of Delhi in case of M/s Faridabad Iron and Steel Traders Association 2003-TIOL-79-HC-DEL-CX as a process not amounting to manufacture and the Revenue appeal having been dismissed by the Supreme Court the Board had vide Circular dated 02.03.2005 withdrawn its Circular dated 07.09.2001 and clarified that the process of cutting and slitting of HR coils into HR sheets/strips does not amount to manufacture and hence the Kamothe unit is not a manufacturer of excisable goods and, therefore, the provisions of CEA, 1944 and CCR, 2004 will not apply to the unit at Kamothe.

The Bench after extracting the contents of Rule 10 of CCR, 2004 observed -

“7. From the above it follows that the transfer of CENVAT Credit shall be allowed only if stock of inputs as such or in process, or the capital goods is also transferred along with the factory and the inputs or capital goods on which credit has been availed of are duly accounted for to the satisfaction of Dy. Commissioner/Asstt. Commissioner of Central Excise. The capital goods which were on lease were returned by the appellants to its owner, is not in dispute. Further on perusal or para 16 of the impugned order we find that the appellant shifted all their inputs both as such or in process, and its finished goods to their unit at Dolvi on payment of duty equal to the credit availed on inputs. We find that the department case is only that the capital goods has not been transferred alongwith inputs. It is pertinent that Rule 10(3) uses the expression “inputs or capital goods” and “not inputs and capital goods” as has been contended by the department. The appellants have transferred all duty paid inputs and work in progress to their Dolvi unit as already discussed. Further, if an assessee has to transfer inputs corresponding to the transfer of entire CENVAT credit in that situation the assessee can at any time clear the inputs on payment of duty and avail the credit of the same at the different location. In such a situation the provision of Rule 10 would be rendered redundant. Further the Ld. Commissioner while confirming the demand has referred to the Order-in-Original dated 31.10.2006, in this referral we find that the said order has been set aside by the Tribunal vide order No. A-479/2007/C.E.I(EB) dated 26.6.2007 and the appeal filed by the department against the order of the Tribunal has been dismissed by the Hon'ble Bombay High Court vide order dated 30.08.20068. In these circumstances, the Order-in-Original is not sustainable and according the same is set aside and the appeal is allowed.”

In passing : Probably this is not the last that we hear of this case…