Excise | Cutting/Slitting HR-CR Coils Not Manufacturing; Duty Paid On Non-Excisable Activity Cannot Make It Excisable: CESTAT Chennai

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that cutting and slitting of HR-CR coils does not amount to manufacture and therefore, payment of duty on such non-excisable activity cannot create a legal fiction to treat it as excisable. The bench further held that CENVAT (Central Value Added Tax) credit availed in respect of such activity is inadmissible, even if duty was paid. P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) stated that if there is no manufacturing activity, the question of availment of input credit does not arise. Here, no manufacturing activity existed at all during 2010–2015. Therefore, the HR/CR coils fail the very existential requirement of input under Rule 2(k). The Payment of duty on non-manufactured goods cannot legitimise the credit. In this case, the assessee/appellant was engaged in the manufacturing of MS bars, ingots, etc. The assessee received duty-paid imported HR/CR coils from dealers and availed CENVAT credit on dealer invoices, and sent the coils to job workers for de-coiling, cutting and slitting. The processed sheets after receipt were cleared back to the same dealers on payment of duty. The duty payments were made by utilising the CENVAT balance and by adjusting the credit on subsequent receipts. During the Audit of Accounts, the Department took the view that the cutting/slitting of coils is not a process of manufacture. On this basis, two show-cause notices were issued, demanding reversal of CENVAT credit of Rs.2,81,51,168, interest, equal penalty under Rule 15(2) (Section 11AC) and directing deposit of amounts collected as “duty” under Section 11D of the Central Excise Act, 1944. The assessee argued that where the finished goods are cleared on payment of duty, prior availment of credit cannot be summarily disallowed. Even if the activity is not manufacturing, credit cannot be denied if the duty is paid. The department submitted that Rule 2(k) after 01.04.2011 excludes goods that have no relationship whatsoever with manufacture, and since the assessee's factory was shut since 04.05.2010, goods cannot qualify as "inputs". Rule 3(5) CCR applies only to valid inputs, and CENVAT Credit availment is illegal at the threshold. The Tribunal agreed with the revenue that cutting/slitting does not amount to manufacture. Therefore, payment of duty on a non-excisable activity cannot create a legal fiction that such activity becomes excisable. The Tribunal opined that the goods were not inputs and CENVAT credit is inadmissible ab initio. Therefore, Rule 3(5) of CCR 2004 is inapplicable in this case, and utilisation of the credit for paying duty is illegal. The bench stated that Section 11D(1A) mandates that any amount collected “as representing duty of excise” on goods that are exempt or not manufactured shall be deposited with the Government. Here, the activity did not amount to manufacture, the assessee collected amounts as “duty” on the invoices and thus Section 11D is automatically triggered. The bench held that the assessee suppressed critical facts, acted contrary to the settled legal position, adopted a malafide mechanism to utilise lapsed credit, and removed inputs without disclosure at highly inflated values intentionally. Thus, all the ingredients of 11A(4) are satisfied, and accordingly, the penalty imposed under Section 11AC is upheld. In view of the above, the Tribunal rejected the appeal. Case Title: M/s. Shree Ganesh Steel Rolling Mills Ltd. v. Commissioner of GST and Central Excise Case Number: Excise Appeal No. 42240 of 2016 Counsel for Appellant/ Assessee: S. Murugappan Counsel for Respondent/ Department: O.M. Reena Click Here To Read/Download Order

Excise | Cutting/Slitting HR-CR Coils Not Manufacturing; Duty Paid On Non-Excisable Activity Cannot Make It Excisable: CESTAT Chennai

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