CX - Revenue is not denying credit taken - All that Revenue is asking is to pay difference between CENVAT credit taken at time of importation minus duty paid at time of clearance of such inputs since activity of re-packing does not amount to manufacture: CESTAT
By TIOL News Service
MUMBAI, SEPT 18, 2015: THE appellants are engaged in the manufacture of lubricants and chemical additives and the raw material for the same is polymer. They are importing polymer [Ch. 39] on payment of appropriate duties. Certain quantities of duty paid imported polymer were cleared,after re-working and repacking,on payment of duty on the transaction value by classifying the same under Ch. 3811 1900/3811 2900.
Revenue says this is wrong inasmuch as since the appellants were clearing the duty paid imported polymer ‘as such', the applicants are liable to reverse the credit availed in respect of such polymer as per the provisions of Rule 3(5) of the CCR, 2004.
Consequently, a demand of Rs.1,16,95,872/- came to be confirmed by the CCE, Belapur along with interest and penalties.
The CESTATwhile ordering pre-deposit of 50% of the duty confirmed,observed –
"8. We find that the admitted facts of the case are that the applicants are importing polymer by classifying the same under Chapter 39 of the Customs Tariff and the same is being cleared as such after repacking. There is no chapter note under Chapter 39 of the Central Excise Tariff to show that repacking amounts to manufacture. The applicants while clearing polymer as such, reclassified the same under Chapter 38 of the Central Excise Tariff. As the applicants are clearing the imported duty paid polymer on which credit has been availed as such, therefore the applicants are liable to reverse the credit availed in respect of polymer. In respect of limitation, we find that the applicants never disclosed to the Revenue regarding their activity that they are clearing polymer as such rather the applicants have shown in their declaration as chemical additives. The applicants are receiving polymer in metal crates and the polymer is de-bulkedfrom metal crates into bags and the polymer bags are cleaned, repacked and re-labelled. We find that this activity cannot be considered as amounting to manufacture as per the provisions of Section 2(f) of the Central Excise Act."
We had while reporting the stay order 2013-TIOL-1704-CESTAT-MUM also adverted to the decisions in 2012-TIOL-826-CESTAT-MUM & 2012-TIOL-614-CESTAT-MUM and remarked that in these cases the duty paid by treating the repacking activity as "manufacture" was more than the CENVAT demand.
Be that as it may, the appeal was heard recently.
The appellant inter alia submitted that the classification shown by them has not been disturbed by the Adjudicating Authority and this indicatedthat the original input has undergone change. While emphasising that once the activity is recognised by the department as manufacture, there was no justification for reversal of credit in terms of Rule 3(5) of CCR, 2004, the following case laws were relied upon –
++ Hino Motors Sales India P. Ltd. 2013-TIOL-1232-CESTAT-MUM
++ Foam Techniques Mfg. (I) P. Ltd. 2015-TIOL-156-CESTAT-MUM
++ Creative Enterprises 2008-TIOL-784-HC-AHM-CX ( affirmed by Supreme Court)
++ MP Telelinks Ltd. 2004-TIOL-77-CESTAT-DEL
++ Ajinkya Enterprises 2012-TIOL-578-HC-MUM-CX
Quantification of the duty demand is also challenged as it is contended that the same is computed on the basis of total duty suffered divided by total quantity of imported polymer.
Another ground taken is that the demand is hit by limitation inasmuch as the appellant was filing ER-1 returns regularly indicating the utilisation of the Cenvat Credit for payment of excise duty. Case laws were cited aplenty. It is also submitted that personal penalties imposed were also not proper as the noticees are only employees and they had acted under a bonafide belief that the process amounts to manufacture.
The AR justified the demand.
After considering the submissions, the Bench observed –
+ It is not under dispute that the polymer imported are classifiable under Chapter 39 and the duty is being paid accordingly. Further, the process being undertaken in the factory is only repacking of the goods in smaller container and putting labels. Thus there is no change in the characteristic of the imported goods or the use of the imported goods and thus the process will not amount to manufacture. One has to consider that the goods have been cleared as such. The importer is required to reverse/repay the Cenvat credit taken at the time of importation. However, this was not done. It is also not in dispute in the present case that the Cenvat Credit taken at the time of importation was much higher than the duty paid on the repacked goods and cleared as chemical additives for lubricating oil.
+ Revenue is not denying the credit taken by the appellant. All that revenue is asking the appellant is to pay the differential amount i.e. the difference between the Cenvat credit taken at the time of importation/receiving of inputs minus the duty paid at the time of clearance of such inputs. We do not find anything wrong in the same and we uphold the demand on merits.
+ We observe that appellant is working under the self assessment procedure. In the monthly return they have described goods under Chapter 38 and paid duty. It is only during physical verification and audit of the factory that the correct facts has come out. The catena of the case laws submitted by the appellant are not relevant in the present facts of the case as revenue has not proposed to deny the Cenvat Credit but what revenue is demanding is the differential amount.
+ We have seen the show-cause notice and the method of quantification. Since the appellant is not able to make one to one correlation with the goods cleared as such with the imported goods what revenue has done is that computed average duty liability for per unit each financial year and subtract duty paid per unit during the financial year. To us, this is most reasonable method in the existing circumstances namely where one to one correlation is not available.
+ From the (ER-1) columns, it is very clear that nobody can make out that the credit on inputs taken are falling under Chapter 39. Further, while clearing the goods no description is mentioned and the classification of the goods mentioned is 38. It is not possible from the above description for any human being that the inputs have been cleared as such and the classification of the input have been changed. We do not see any reason for the appellant to change the classification. To our mind, the classification has been changed only to ensure that they are in a position to take higher credit and pay lower duty. In our view, there is clear cut suppression of fact and wilful misstatement and in view of the fact and circumstances, extended period of limitation is correctly invoked.
+ As far as the personal penalty on Arokia Samy and Ramesh Babu is concerned, we observe that classification of the product has been changed without any manufacturing process . This fact was in their knowledge and, therefore, they were aware that the goods are liable to confiscation and they were also concerned with the said goods and in view of the said position, the penalty is imposable on them. However, keeping in view the overall facts, the penalty imposed on each of them is reduced from Rs. 2 lakhs to Rs. 1 lakh each.
The appealof the assessee was dismissed.
In passing : More in the days to come…
(See 2015-TIOL-1971-CESTAT-MUM)
