By TIOL News Service

MUMBAI, JUNE 19, 2015: THIS is Revenue appeal and the order passed in its favour may cause many a heartburn amongst the assessees similarly placed.

The respondents are engaged in the process of cutting and slitting of jumbo rolls of imported self-adhesive film and self-adhesive paperas per the requirement of the customer. During the slitting process dirt and oil is sucked out and static electricity is removed. The rolls after slitting are rewound using rewinding machine to obtain appropriate tension. These rewound rolls can thereafter be used for printing by the customers. Printed films/paper are affixed on bottles/containers of various items such as shampoo, etc. The respondent-assessee was paying excise duty on the slitted self-adhesive film and self-adhesive paper and was availing CENVAT credit of the duty paid on the inputs.

Revenue is of the view that the said process does not amount to manufacture in terms of Section 2(f) of the CEA, 1944 and hence the final products are not dutiable and, therefore, the respondent-assessee could not have availed CENVAT credit on inputs and capital goods.

A demand notice dated 04/10/2011 came to be issued proposing recovery of the allegedly wrongly availed CENVAT credit of Rs.22,70,34,831/- during the period May 2007 to April 2011. Confiscation of inputs/capital goods, imposition of penalties, interest etc. were also proposed.

The CCE, Belapur found no merit in the allegations and dropped the proceedings. This was in October, 2012.

The wisdom of the Committee of Chief Commissioners saw the department filing an appeal against this order before the CESTAT.

The AR relied on the decision in S.R. Tissues Pvt. Ltd. - 2005-TIOL-101-SC-CX and submitted that the apex court had held that the process of slitting/cutting of jumbo rolls of plain tissue paper/aluminium foil into smaller size will not amount to manufacture. Therefore, the stand taken by the department in the SCN is correct and the adjudicating authority was wrong in dropping the demand.

The respondent assessee submitted that the process undertaken by them is an elaborate one and involves large number of steps and for that purpose they have installed number of machines. It is further submitted that Supreme Court's judgment in the case of Kores India Ltd. - 2004-TIOL-92-SC-CX is squarely applicable in their case as in the said case cutting of jumbo rolls of typewriter/telex rolls were considered as a process amounting to manufacture. And so is the decision in Brakes India Ltd. - 2002-TIOL-858-SC-CX. Inasmuch as the decision in the case of S.R. Tissues Pvt. Ltd. is per incuriam. It is also submitted that CENVAT credit availed by them has been utilised for the clearance of the slitted self-adhesive tapes and films and, therefore, denial of CENVAT credit on the ground that the activity not amounting to manufacture is not correct in view of the judgment in the case of Creative Enterprises - 2008-TIOL-784-HC-AHM-CX which has been affirmed by the Supreme Court. Reliance is also placed on the decision in Ajinkya Enterprises - 2012-TIOL-578-HC-MUM-CX where a similar view was taken. Moreover, the extended period of limitation cannot be invoked as at the time of taking registration they have submitted the manufacturing process/flow chart and, therefore, Revenue was in the know of the activity undertaken.

The Bench inter alia observed -

++ All that is being done is to reduce the width of such films. Number of machines used in the process is irrelevant to determining whether it amounts to manufacture.

++ In the present case, we do not find like the case of Kores India Ltd. or Brakes India Ltd. that the product manufactured has a different name, character or different use. It is just that the width of jumbo rolls is cut and slitted in such a way that it is suitable for a particular product and the printing industry. If there is a printing machine which can take up the jumbo rolls then such self-adhesive films and self-adhesive tapes can straightway be printed. On the contrary, we are of the considered view that the facts in the present case are almost similar to that of S.R. Tissues Pvt. Ltd.

++ In view of the above position, we have no hesitation in holding that the activity undertaken by the appellant will not amount to manufacture.

++ We are not impressed with the argument that the judgment of the Supreme Court in the case of S.R. Tissues Pvt. Ltd. is per incuriam as the case of Kores India Ltd. was not brought to the notice of the hon'ble Supreme Court. Though it is true that the judgment of the Supreme Court in the case of Kores India Ltd. was not brought to the notice of the hon'ble Supreme Court, however, the facts in the case of Kores India Ltd. and S.R. Tissues Pvt. Ltd. are different and, therefore, it cannot be said that the judgment of the hon'ble Supreme Court in the case of S.R. Tissues Pvt. Ltd. case is per incuriam.

On the submission made by the respondent assessee that since CENVAT credit has been utilised in the clearance of the final products which are now held to be non-dutiable, Revenue cannot seek to demand the credit so utilised., the Bench expressed its agreement with the same and observed -

"…that since the credit taken has been utilised for the clearance of their final product the same cannot be again demanded. However, it is not clear from the records whether the CENVAT credit taken for a particular quantity was utilised for the clearance of that quantity of the goods . During the hearing, the learned Sr. Counsel was asked whether they have paid any amount from PLA as normally any process would lead to value addition and the respondent should have paid something from PLA, on checking from the appellant's representative, the learned Sr. Counsel has informed us that so far they have not paid any amount from PLA. In view of the said position, we are of the view that the appellant should furnish the details of the credit taken and credit utilised for clearance of the corresponding final products and in case input credit taken is more than the duty paid on the final products, then the differential CENVAT credit needs to be reversed or paid back. Similarly, credit availed on capital goods need to be reversed or paid back."

In the matter of the submission that the demand is hit by limitation as the assessee had submitted the details of the activity conducted by them at the time of registration, the CESTAT held that it was not impressed with this argument and further observed - In the application for registration certain information is required to be filled and the purpose is only to grant registration and the question whether the activity amounts to manufacture or not is not required to be examined. Similar is the position in respect of ER-3 or ER-7, etc. Assessment document is monthly return, which are also self assessed. In the said returns and in other documents this issue/details were not mentioned and in view of this position, in our view there was suppression of facts and therefore, extended period of limitation is correctly invoked.

Nonetheless, the Bench held that in view of the nature of the dispute, it was not a fit case for confiscation of goods and imposition of penalty on the assessee/Director. The CESTAT also added that it was not inclined to discuss each one of the judgments cited by both sides.

The appeal of the Revenue was allowed by way of remand.

In passing: In all probability, this is not the last that we hear of this case…

(See 2015-TIOL-1172-CESTAT-MUM )