By TIOL News Service

MUMBAI, DEC 31, 2016: THE case against appellant is that they had wrongly availed CENVAT credit on 'MS wire' procured from the market for altering the gauge before clearance along with wire manufactured from 'wire rods'.

While the former activity does not fall within the ambit of 'manufacture' u/s 2(f) of CEA, 1944, the goods produced by latter activity are subject to levy of duties of Central Excise.

Though the appellants had, initially, maintained separate sets of accounts for the two streams of production, logistical problems compelled them to avail CENVAT credit on inputs used in common with the attendant obligation to discharge duty liability at 8% on exempt goods to comply with CCR.

The department was not pleased with this payment mechanism and, in May 2003, directed the appellant to pay the difference between CENVAT credit taken on 'MS wire' and the 8% paid by them on 'MS wire' made out of duty-paid 'MS wire.'

The demand of Rs.3,98,962/- was confirmed along with penalty and interest. A penalty of Rs.50,000/- was also imposed on the Director of the Company.

As the Commissioner(A) upheld this order in June, 2005, the appellants are before the CESTAT.

The appellant inter alia submitted that they were compelled to pay duty on re-drawn wires; that re-drawn 'MS wires' are not non-excisable goods; that with acceptance of duty amount of 8% there is no scope for denial of credit; that bulk of their production is manufactured out of 'wire rods' and that denial of CENVAT credit is not warranted.

The AR supported the orders of the lower authorities and relied upon the decision in WIMCO Ltd - 2007-TIOL-186-SC-CX.

The Bench inter alia observed -

++ Doubtlessly, drawal of thinner gauge products from 'MS wires' is not manufacture and, in any case, the end product is not leviable to duty.

++ Subsequent adoption of the qualifying expression 'excisable' in rule 2(d) of CENVAT Credit Rules, 2004 does not imply that, under the erstwhile Rules, exempt goods included non-excisable goods.

++ The privilege that accompanies payment of specified tax or duty on exempted goods or services under CENVAT Credit Rules, 2004 is intended to ensure that convenience is afforded to manufacturers or service providers who may, owing to some exemption that they may not be interested in claiming, be, yet, compelled to implement administrative measures of separate accounts that are too cumbersome. On non-excisable goods, the purchaser is not denied the option of paying duty. Consequently, appellant has rightly been denied the facility of payment of the deemed tax/duty to avail CENVAT credit.

++ Counsel submits that there was no intention to evade duty in adopting the facility of payment of tax of 8% and that there has been no suppression or willful misstatement on the part of appellant which would render the demand in show cause notice of 12th April 2004 to be barred by limitation for the period from 1st August 2001 to 31st July 2002. The communication from appellant to the Range on 22 nd September 2000 and the direction of the Range to appellant in letter dated 14th December 2001 is claimed as support for this contention made on behalf of appellant. Neither the original authority nor the first appellate authority have considered this aspect and have not rendered a finding on the allegation of deliberate suppression of facts with intent to evade duty even though the claim of limitation was raised in response to the notice.

Holding that the recovery is hit by limitation in section 11A of CEA, the impugned order was set aside and the appeals were allowed.

(See 2016-TIOL-3372-CESTAT-MUM)