BANSILAL RAMNATH AGRAWAL CHARITABLE TRUST S

VISHWKARMA INSTITUTE OF MANAGEMENT KONDHWA, PUNE 411048

A PROJECT REPORT ON

CASE STUDY IN EXCISE

AT AMEYA MANAGEMENT CONSULTANCY PVT LIMITED.

SUBMITTED BY

ASHISH.D.KULKARNI
MBA II

SUBMITTED IN PARTIAL FULFILMENT FOR DEGREE OF MASTER OF BUSINESS ADMINISTRATION

DURING THE YEAR 2006-2007

BANSILAL RAMNATH AGRAWAL CHARITABLE TRUST S

VISHWKARMA INSTITUTE OF MANAGEMENT KONDHWA, PUNE 411048 DATE: - 20th AUGUST 2006

CERTIFICATE
This is to certify that Mr. ASHISH. D. KULKARNI is a Bonafied student of our Institute. He gas successfully carried out his Summer Project Titled CASE STUDY IN EXCISE.

This is the Original study of ASHISH.D.KULKARNI and the important sources used by him, have been acknowledged in his report.

The report is submitted in the Partial Fulfillment of Two years Full time Course MASTER OF BUSINESS ADMINISTRATION (M.B.A.) as per rule of PUNE UNIVERSITY.

Dr. Sharad. Joshi

(Director)

Prof.Mahesh Halale
(Project Guide)

ACKNOWLEDGEMENT: I am very grateful to Mr. R.M Khadilkar the Proprietor and Managing Director of Ameya Consultancy Pvt ltd. for providing me an opportunity to

complete my summer training in the Ameya Consultancy Pvt Ltd.

I avail this opportunity to give my thanks to Mr. R. M .Khadilkar Director, and the staff for extending their support towards successful completion of the project. In spite of their busy schedule they took out the time to answer my queries patiently and helped me throughout the project.

My sincere thanks to all staff of Ameya Management Consultancy Pvt Ltd. for all the cooperation and assistance to me at any time without which the project would have been incomplete.

I am proudly indebted to my Project Guide Prof. Mahesh. Halale for all his support and guidance towards the completion of my project.

Last but not least I am thankful to The Director, All Departmental Staff of Vishwakarma Institute of Management and my friends for providing me the moral support towards the completion of this project.

Ashish . D. Kulkarni

INDEX
Sr.no Particulars Page. No. 1 3 4 15 25 28 50 52

1 2 3 4 5 7 8 9

Executive Summary Objective and Scope of the project Company s Profile Theoretical background Actual Case Data collection & findings Conclusion Bibliography

EXECUTIVE SUMMARY

A)

INTRODUCTION OF THE PROJECT The project is regarding a Show cause notice to an reputed

organization (identity kept anonymous for the purpose of confidentiality) regarding the contravention of the Rule 3 of Cenvat Credit Rules, 2004 for wrongly availing and utilizing Cenvat Credit on H.R Coils meant for trading.

B)

PROJECT TITLE

Case Study in Excise

C)

WHY HAVE YOU CHOSEN THIS FIRM AND THIS PROJECT I chose AMEYA MANAGEMENT CONSULTANCY PVT. LTD.

because they are the MANAGEMENT AND TAX CONSULTANTS FOR INDIRECT TAXES IN INDIA. My choice of this project was based upon the following factors-:

1) The selection of case study inculcated an orderly approach towards work and helped me in understandings the intricacies pertaining to Cenvat with respect to this case

2) It helped me a lot in clearing my concepts as well as the way in which points are to be put up for the purpose of fighting a legal battle.

3) And last but not the least it helped me in developing an insight , and the points that are to be concentrated upon and the points to be left out. Though the insight 5

of looking a case shall improve only after continual experience but still it provided me with the necessary launch pad.

D)

LOCATION 514, 5th floor, Siddharth Towers, Near City Pride Theater, Off Karve Road, Kothrud Pune-411029. DURATION: 54 days, 1st June, 2006 to 30th July, 2006 .

The Address of Firm is as follows:

E)

OBJECTIVE
TITLE

DIFFERENT OBJECTIVES-:

Primary objective-:

1) To know how to approach a case pertaining to excise and learning how to present relevant points defending the allegations. 2) To understand the concept of Cenvat credit and the charging section of the same. 3) To understand the situations in which Cenvat credit can be availed . 4) To know the various section relating to penalties if the Cenvat credit is wrongly availed.

Scope -: 1) The basic condition governing this project was that all information regarding the client on whom the case was filed will be made available only if no information like the name of the Client company or any information relating to its location are published by which the identity of the company is revealed. As it would result into breach of trust. 2) The project was limited towards understanding and putting up relevant points for the purpose of solving case and not beyond that.

COMPANY PROFILE
COMPLETE NAME OF THE COMPANY-: Ameya management consultancy pvt. Limited. 514, 5th Floor, Siddharth Towers, Near City-Pride theater, Off Karve Road, Kothrud, Pune-411029

ADDRESS-:

SERVICES OFFERED-:

1) Management & Taxation Consultancy in Indirect Taxes in India.

2) Systems [ERP like SAP, ORACLE etc.] development & Management.

3) Computerization of Financial, materials and related records.

4) Realization of export benefits.

5) Liaison with offices of Director General Foreign Trade, Customs, Software Technology Parks of India, Development Commissioner [SEEPZ, Mumbai].

6) In-house awareness/ training Programs in Indirect as well as Direct Taxation in India.

7) Identification of resource organization and tie up with them in areas of logistics, warehouse management, infrastructure providers.

Note: The Organization is aided and headed by professionals having versatile working experience in the capacity of head of the departments like Excise, Commercial & Stores in major Indian Corporate and MNC s for last fifteen years. This includes areas like compliance to Central Excise & Service Tax law, systems, dispatches and materials management.

The organization at present is engaged in soliciting advises to various manufacturing MNC s, Industries in organized Sector and Infra-structure projects in respect of Central Excise, Customs & Service Tax laws. It also helps to the corporate sector for conducting in-house training programs for their employees so as to upgrade their skills in these laws.

The organization also provides aid for developing a system, system audit, up gradation of the system and verification of records to ensure the statutory compliance required under various provisions of the said fiscal laws i. e. Central Excise, Customs & Service Tax.

The organization also provides consultation in replying to the queries raised by the Government Departments. It also provides support and assistance in legal disputes before quasi-judicial and judicial authorities up to the Apex court in India.

CONSULTANCY

We provide consultancy in

Indirect Taxes.

1 Central Excise Act, 1944

2 Service Tax ( chapter V of the Finance Act, 1994)

Liaison & logistics

1. With Customs, DGFT, STPI, SEEPZ 2. With infra-structure providers and logistics providers Central Excise Act, 1944

The Central Excise Act, 1944 is one of the major revenue contributors and the same is revenue for the union Government. The said Act allows levy and collection of duty on the activity of production or manufacture of Excisable Goods in India. The said tax is payable by the manufacturer of the Excisable goods. The Central Excise Law certainly ranked as the most complicated branch of law in the country. It has to be understood by getting conversant through an entangled and confused mass of Central Excise Act, Central Excise Tariff Act, Central Excise Rules, 2002, Central Excise Appeals Rules, 2001, Cenvat Credit Rules, 2004, Central Excise (Settlement of Cases) Rules, 2001, Central Excise (Removal of Goods at Concessionals Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. In addition to the above one also will have to get conversant with around 20 Acts and Rules relating to additional duties of Excise & Cess. The confusion further gets compounded by an astonishing number of amendments brought about by various Notifications that are issued each year.

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penal provisions like penalty equal to the duty, Interest @ 13% P. A. on the duty sought to be evaded etc. make it obligatory on the part of the manufacturer to keep a cautious approach to the said act. EOUs registered with Excise Department and related services such as procurement of CT3 s from Department, Bonding & de-bonding, Re-warehousing Certificates, DTA Sale Permissions, Job-Work permissions, etc.

We provide advice to the manufacturer so as to enable him to discharge the correct duty liability to avoid litigations in future. We also extend help in defending the case at the appropriate levels such as Commissioners (Appeals), Customs Excise Service Tax Appellate Tribunal (CESTAT). We also extend help in preparing periodic returns, verification of records maintained by the manufacturer and Excise Audits in line with EA 2000.

SERVICE TAX

The Finance Act, 1994, introduced the said Tax for first time in the

year

1994.Atpresent more than 90 Services, which have been brought under the tax net. It s expected that in forthcoming years some more services also will be brought so as to compensate the revenue loss, which Government is likely to incur due to rationalization of rates in Customs and Central Excise. The Tax is on the activity of providing specified services and the service provider is liable to pay the tax the periodic returns are required to be filed.

We provide help to fulfill all the procedural requirements and also discharge correct tax liability. We also provide service to contest the Notices to Show Cause at various Appellate forums.

Recently Government had introduced intra-sectoral Credit. This is very important as far as industry. We give adequate support to develop, understand the new terminology and train staff, officers to work accordingly. Now the Excise & service

11

tax is to be seen as profit center and we take proper initiative to guide industry to keep age.

IN-HOUSE AWARENESS/TRAINING PROGRAMS

Since the policy of the Central Government is to bring broad base reasonable taxation in the field of Direct as well as Indirect Taxes, many changes are brought in particularly in the field of Central Excise Law. The Objective of these changes is to simplify the procedures required to be followed by the manufacturer. It is our experience that many number of times the execution department like materials, stores, marketing etc. commit number of mistakes unconsciously due to lack of awareness/Updation about the changed procedure provided in the law. The said mistake therefore results in to litigations and penal actions on the organization.

To avoid these mistakes arranging regular awareness programs within the organization immensely help the company to prevent such type of mistakes. We provide such in-house awareness programs wherein the procedures required to be followed are explained in simple layman s language. After the awareness it was experienced that employees brings out many practical difficulties they face in their day-to-day working. The solution to these difficulties also helps to the organization to make necessary modifications in its internal control system. In majority of cases it is experienced that 90% of the procedural lapses gets automatically solved and litigations gets reduced. The confidence of the employee s increases and overall working becomes smooth. It is advisable to arrange this type of programs at least two times a year to enable the staff members to keep them selves up-to-date on the recent changes. These programs are generally conducted in the field of Customs, Excise & Service Tax.

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SYSTEM AUDIT

Since 1986 the Central Excise Law can be looked as one of the effective tools for the purpose of increasing the competitiveness, profitability of the organization. The resent approach of the Government and the simplification major implemented in law suggest on line proper system of accounting of a transaction from its inception to the closure. Slowly the statutory records, which were required to be maintained under various laws stands, abolished and private records maintained by the organization are replacing the same. The manufacturer is now law bound declare his private records maintained by him in respect of purchases, receipt of material, storage of material, issue of material, accounting of finished goods and removal thereof. He is also required to give the complete details, audit trails in case the records are maintained on computers. In short the complete details are now to be declared to the Excise Authorities. The Excise Authorities on the basis of these declarations is likely to conduct the audits of the company. It is therefore advisable to monitor the system periodically so as to make it completely foolproof. It is also necessary that periodic reconciliation if any of the various returns filed under various laws is done. Our organization extends help in this area too.

The verification of various private records in maintained in connection with Central Excise Law.

The method of excise audit is undergoing radical changes. The old system of internal audit now being stands replaced by a new system called Excise Audit 2000 (EA 2000). The said system at present is introduced to certain category of

industries and slowly will be implemented to all manufacturing units. The said system not only insures a complete transparency but also encourages voluntary compliance. The departmental audit parties are expected to visit the organization with advance intimation. The higher officers of the rank of Additional Commissioner are expected to personally supervise the audit and he may

13

discuss the audit observation with the senior management staff of the organization.

The very change in approach also expects transparency in the records maintained by the organization. It is therefore advisable to verify the records on the basis of EA - 2000 periodically. The said verification will insure all the procedural compliance on one hand and also can suggest a corrective action if any which shall help the organization to make the voluntary compliance. Such voluntary compliance will also be appreciated by the department and the audit it self will be smooth. We extend our expertise in this field also.

SOFTWARE TECHNOLOGY PARK UNITS/ EOU S

In this area we provide services like obtainment of Customs license under Section 56 of the Customs Act, 1962 for in bond manufacturing, execution of Bond, obtainment of CT-3 certificates/ Procurement Certificates for duty free procurement. Re-warehousing certificates, permission for material to be send for job work etc. De-bonding of goods, shifting from one premises to another premises (i.e. in bond movement).

Audit & verification of compliance with Bond Register & B-17 Bond Register verification & guidance.

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ON-LINE HELP DESK

Updation is a key word to avoid litigations. It has been seen that many number oftimes while taking crucial decisions help is required before the decision is finalized. We provide such through e-mail system. The company officials at any time can contact us through e-mail; we shall provide our expert advice as fast as possible as but not later than 24 hours for the quarries raised. This on-line service may help the employee to finalize his decision quickly and also on-time. We undertake to help, guide & develop Excise, Service Tax related programs in Oracle Apps, SAP or any ERP System To give road map for customization, boltin systems which will take care for legal requirements & data management

System Development

We undertake to help, guide & develop Excise, Service Tax related programs in Oracle Apps, SAP or any ERP System To give road map for customization, boltin systems which will take care for legal requirements & data management.

Our valued clients:

Our list of clients includes more than 75 manufacturing industries, taxable service providers and infrastructure providers. Few illustrious of them are

1. Cummins India Limited 2. Cummins Diesel Sales & Service (India) Limited 3. Nelson Engine Systems India Limited 4. Lucas TVS Limited 5. HSBC Software Development India 6. Praj Industries Limited 7. Honeywell Turbo Atomization India Limited 8. Honeywell Turbo India

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9. Husco Hydraulics Pvt. Limited 10. Spicer India Limited 11. Gabriel India Limited 12. Coro Colour India Limited 13. Siro Plast Limited 14. Mahindra Automotive Steels Limited 15. Mojj Engineering Systems Limited 16. V Cube Forge India Limited 17. Disha Technologies India Limited 18. Die-Aluminum India Limited 19. Durabuild Techniques India Limited 20. Ghatge Patil Transports Limited 21. Reinshaw Metallurgy Techniques India Limited 22. Magarpatta Township Development Co. Limited 23. Vascon Engineers Limited 24. Paranjpee Schemes Limited 25. KTR Couplings Limited 26. Mahle Filtration Systems India Limited 27. PMT Machines Limited 28. Precision Automation and Robotics India Limited 29. Seinumero Engineering India Limited 30. Seinumero Machine Tools Limited 31. Soma Textiles & Industries Limited 32. Spintex Industries Limited 33. Starion India Limited 34. Fleetguard Filters Pvt. Limited 35. Abhi Natural Products Pvt. Limited 36. Anand Technology Resource Parts {Anand Group] 37. Accurate gauges & Tools Pvt. Limited 38. Ambika Waste Management Pvt. Limited 39. Arklite Specialty Lamps Limited

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40. Accurate Sales & Services 41. Alfa Industries & Batteries 42. Am-tech Engineering 43. Aura Electronics Pvt. Limited 44. Autobat Battries Pvt. Limited 45. SpaceSaver Exports Pvt. Limited 46. Armar Industries 47. Amruta Enterprises 48. Atul Enterprises 49. Chatham Thermostat Pvt. Limited 50. Classic Strips India Pvt. Limited 51. Dhruvi Flexipack Pvt. Limited 52. Dispotronics 53. Enginetech Systems Pvt. Limited 54. Filtrum Tools Pvt. Limited 55. Filtrum Paper Products Limited 56. Glotech Mold India Pvt. Limited 57. Gadre Marine Exports Pvt. Limited 58. Hodak Engineering Pvt. Limited 59. Hardik Founders & Engineers Pvt. Limited 60. ID Technologies 61. JD Panse & Co 62. JIS Tools Company 63. Magarpatta Resort & motels Pvt. Limited 64. Magarpatta Property Management Co. Limited 65. Microversa Automisation Pvt. Limited 66. Marigold Premises Pvt. Limited 67. Pawas Canning 68. Prasanna Tours & Travels Pvt. Limited 69. Premier Engineering Company 70. Power Control Systems Pvt. Limited

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71. Prabhat Dyes & chemicals Pvt. Limited 72. Pruthvi Consultants 73. Pusalkar Michel Pvt. Limited 74. Rawat Brothers Furniture s Pvt. Limited 75. Rajmal Lakhichand Jewelers 76. RICO 77. M & G Engineers 78. Sathe & Co 79. Sanes 80. Sharad Industries 81. Sarod Engineering Pvt. Limited 82. Space N Style Pvt. Limited 83. Sardesai Auto Parts Pvt. Limited 84. Seinumero Nirman Pvt. Ltd 85. Shree Systems Pvt. Limited 86. Shonk Engineering Pvt. Limited 87. Surya Engineering 88. Surya Chem India 89. Specific alloys Pvt. Limited 90. Spectra Chemicals Limited 91. System Engineers Pvt. Limited 92. Star Krupa 93. Systems consultants Pvt. Limited 94. Transcetic Cores Pvt. Limited 95. Tushar Autoparts Pvt. Limited 96. Ultimate Engineering 97. Ultra Laboratories 98. Marigold Properties Limited 99. Vikvin Consultants Pvt. Limited 100. Whirlpool of India Limited, Pune

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THEORETICAL BACKGROUND
The show cause notice directed towards the organization was due to the violation of Rule 3, Cenvat Credit Rules, 2004 regarding wrong availment and utilization of Cenvat credit on H.R. Coils meant for trading. So it is absolutely important and relevant to understand the concept of CENVAT CREDIT AND RULE 3 OF CENVAT CREDIT RULES, 2004

CENVAT CREDIT-: The basic scheme concept of the scheme is to give instant credit of the Central Excise Duty paid (including additional duty, special excise duty and counter vailing duty on input) on goods used in the process of manufacture of Final product. Such instant credit can be utilized towards the payment of excise duty on the final product. In short, the manufacturer is reimbursed the amount of duty paid on the components and raw materials used in production process. The assessee is eligible to take 100% credit of the duty paid on inputs. The manufacturer can avail the benefits of CENVAT scheme provided that inputs and finished products are excisable commodities and within the range of product so notified under this scheme. A manufacturer who is availing the benefits under CENVAT scheme cannot avail benefit of proforma credit scheme during the same financial year.

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Illustration

Final Product: A 1) Inputs used in Final Product and amount of duty paid

PARTICULARS
Steel Aluminum Components And Consumables Packing Material Total Duty Paid On Inputs Add: Education cess at 2% on duty

AMOUNT
240 210 250

100 800 16

TOTAL

816

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2) Final product A per unit

PARTICULARS
Total Cost Add: Profit 10% on cost Assessable Value Excise Duty (@ 16% ad valorem) Add: Education Cess @ 2% on E.D.

DETAILS

AMOUNT
20,000 2,000 22,000

3520.00 70.40 3590.40 25590.40

3) In this example total cost of Rs. 20,000 includes the amount of duty + education cess at 2% on E.D. paid Rs. 816 on the inputs on which further excise duty @ 16% i.e. Rs. 130.56 is levied in the cost of final product. Thus , this amounts to duty on duty or the CASCADING EFFECT . CENVAT scheme gives the relief to the manufacturer in respect of Duty on Duty.

4) Now lets study the effect on prices of the final product before and after CENVAT Scheme resulted in lowering the price level, which in favor of consumers

21

Particulars Total Cost Credit for duty on Inputs Net Cost Profit @ 10% of cost of Assessable Value Duty at 16% (Ad valorem) Education Cess CUM DUTY PRICE . IMPORTANT DEFINITIONS

Position before CENVAT RS. 20,000 NIL 20,000 (+) 2000 22,000 3520 (+) 70.40 25590.40

Position after CENVAT Rs. 20,000 (-) 816 1,9184 (+)1,918 21,102 3376.32 (+) 67.53 24545.85

1) INPUTS- Inputs covers the following:

i) All goods, except high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to manufacture of final product whether directly or indirectly and whether contained in the final product or not.

ii) Input includes accessories of final product cleared along with final product, goods used as paint, or as packing material or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purposes, within the factory of production.

iii) Input also includes lubricating oils, greases, cutting oils, coolants.

Explanation 1 : The high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as input for any purpose whatsoever.

Explanation 2 : Input also include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer.

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2) CAPITAL GOODS- Capital Goods means

i) All goods falling under Chapter 82,84,85,90, heading No. 68.02 and subheading No. 6801.10 of the First Schedule of the Tariff Act ;

ii) Components, spares and accessories of the goods specified at (i) above;

iii) Moulds and dies;

iv) Refractories and refractory materials;

v) Tubes, pipes and fitting thereof used in factory;

vi) Pollution control equipments; and

vii) Storage tank used Used in the factory of the manufacturers of the final products.

Equipments or appliances used in office are excluded from the definition of capital goods and hence NO CENVAT credit can be availed on these items. E.g. Xerox machine, computer.

To get the benefit of CENVAT credit in respect of capital goods, the only condition is that the capital goods should be used in the factory of manufacturer.

CENVAT credit on capital goods is not available if it is used in another company, even if it is subsidiary company. SUMANGALA SHIPPING MILLS Vs. C.C.E. 1999.

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3) EXEMPTED GOODS- Exempted goods means goods which are exempt from the whole of the duty of excise leviable thereon and includes goods which are chargeable to NIL rate of duty.

4) FIRST STAGE DEALER- First stage dealer means dealer who purchases the goods directly froma) The manufacturer under the cover of an invoice issued in terms of the Provisions of the Central Excise Rules, 2002 or from the depot of the said manufacturer or from premises of the consignment agent of the said manufacturer or from any other premises from where goods are sold by or on behalf of the said manufacturer, under the cover of an invoice. Or

b) An importer or from the depot of an importer or from the consignment agent of the importer 5) SECOND STAGE DEALER- Second stage dealer means a dealer who purchases goods directly from the first stage dealer.

APPLICABILITY OF CENVAT CREDIT / SALIENT FEATURES OF CENVAT SCHEME

1) CREDIT ON DUTY PAID TO MANUFACTURER OF EXCISABLE GOODSThe provisions of CENVAT scheme shall apply to the manufacturer of notified excisable goods who uses the notified inputs in the manufacture or in relation to the manufacture of final product

2) CREDIT ON DUTY PAID ON INPUTS- The CENVAT scheme is principally based on system of granting credit of duty paid on inputs. Under CENVAT scheme, the manufacturer while making the payment of duty on final product can

24

avail and utilize the instant credit of duty paid on inputs. This will result in considerable result in cost of Final product. This also avoids duty on duty.

3) INPUTS MAY BE USED DIRECTLY OR INDIRECTLY- The inputs in respect of credit of duty paid is claimed, must be directly or indirectly used in relation to the manufacture of the final product. The input need not be present in the final product.

4) NO CREDIT ON HSD AND PETROL- Duty paid on high speed diesel and motor spirit (petrol) is not available as CENVAT credit, even if these are used as raw materials.

5) NO CREDIT IF THE FINAL PRODUCT IS EXEMPT FROM DUTY- No CENVAT credit is available if the final product is exempt from duty [Rule No. 6(1)]

6) SPECIFIED DOCUMENTS AND RECORDS- CENVAT credit can be availed on the basis of specific documents as a proof of payment of duty on Inputs. The manufacturer should maintain proper records for receipt, disposal, consumption and inventory of the inputs and capital goods containing details such as value, duty paid, person from whom inputs are purchased.

7) CENVAT SCHEME COVERS BOTH INPUTS AND CAPITAL GOODS

8) INSTANT CREDIT- Credit of duty paid on inputs can be taken instantly i.e. as soon as the inputs reach the factory. In case of capital goods 50% credit is available in the current year and balance 50% in subsequent financial year.

9) PROCESSES LOSSES- CENVAT credit is available on all inputs even if some of inputs go as process loss.

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MANNER OF AVAILMENT OF CENVAT CREDIT

1) TO WHOM THE CENVAT CREDIT IS ALLOWED? - Rule 3(1) of CENVAT

credit rule states that a manufacturer or producer of final products shall be allowed to take credit of specified duties paid on inputs or capital goods received in the factory. CENVAT scheme has been extended to all manufactured final products.

2) DUTIES ELIGIBLE FOR CREDIT [RULE 3(1)] - Following duties paid on inputs are eligible for CENVAT credit. i) Basic excise duty paid on goods specified in first schedule to C.E.T.A.

ii) Special excise duty paid on goods specified in second schedule to C.E.T.A.

iii) Additional duty paid (CVD) paid on imported inputs.

iv) If the inputs are obtained from a 100% EOU units, units in SEZ, STP or EHTP, the credit will be as per prescribed formula which is 50% of (Multiplied by + (1+BCD)/ 100 x (CVD)/100.

v) Additional excise duty paid under additional duties of excise (Goods of Special Importance Act and corresponding CVD on imported goods.

vi) Additional Excise duty paid on textiles and textile articles. If these are imported, corresponding CVD is also eligible.

vii) National calamity contingent duty leviable u/s 136 of thee Finance Act 2001. This credit can be used for payment of NCD on inputs only and not for any other duty. Credit of AED (GSI) and special excise duty

26

can be utilized for payment of excise duty on final products and viceversa.

3) CENVAT CREDIT ON INPUTS LYING IN STOCK- Not withstanding any thing contained in sub rule 1 above the manufacturer or producer of final product shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process of inputs contained in the final products lying in stock on the date on which any goods become excisable.

4) UTILIZATION OF CENVAT CREDIT [RULE 3(3)]- The CENVAT credit may be utilized for the payment of any duty of excise on a) Final product b) Inputs c) Capital goods If such inputs are removed as such or after being partially processed or such capital goods are removed. The CENVAT credit shall be utilized only to the extent such credit is available on the 15th day of month for payment of duty relating to first fortnight of the month and the last day of the month for payment of duty relating to second fortnight of the month.

5)

DUTY

TO

BE PAID

IF INPUTS OR

CAPITAL GOODS ARE

REMOVED[RULE 3(4)]- If the inputs or capital goods on which CENVAT credit has been taken, are removed from the factory, the manufacturer of the final product shall pay an amount equal to the duty of excise which is leviable on such goods at the rate applicable to such goods on date of such removal and on the value determined for such goods on the date of such removal and on the value determined for such goods under this act and such removal shall be made under the cover of an invoice.

6) CENVAT CREDIT IN RESPECT OF FTZ/ SEZ/ EOU UNITS [RULE 3(5) a]CENVAT credit in respect of inputs or capital goods produced or manufactured-

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i) In a Free Trade Zone or SEZ or by 100% EOU or by EHTP or STP and used in manufactured of final product in any place in India, shall be admissible equivalent to the following amount= 50% of (Assessment Value x 1 + BCD* CVD /100

where BCD

Ad valorem rate in percentage of basic custom duty and additional

duty of customs on inputs and CVD- Ad valorem rate in % of basic custom duty and additional duty of customs on capital goods

7) UTILIZATION OF CENVAT CREDIT IN RESPECT OF ADDITIONAL DUTY [RULE 3(5) b]CENVAT credit in respect of the additional duties of excise on Textiles and textile articles, goods of special importance, shall be utilized only towards the payment of duty of excise leviable under the said Additional Duties of Excise Act (Textile and Textiles Articles act or Additional Duties of Excise (goods of special importance)

8) CENVAT IN RESPECT OF ADDOTIONAL DUTY PAID ON MARBLES OR TILES SHALL BE ALLOWED TO THE EXTENT OF Rs. 30 PER SQ MTR [RULE 3(b)(c)]

9) CENVAT CREDIT IN RESPECT TEXTURISED YARN NOT ALLOWED

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THE ACTUAL CASE

The Company was issued a show cause notice in which the following allegations were made: 1) The first issue is regarding whether can the company claim setoff against Cenvat credit amounting to Rs 200000 which was already paid by the party as duty on inputs.

2) The second point is an extension of the first accusation, where in the party is already accused for wrong availment of Cenvat credit, so as per the provision of Rule 14 (CENVAT CREDIT WRONGLYTAKEN OR ERRORNEOUSLY REFUNDED) , has been ask to pay interest on it.

Thus for which we had to put up the following points about the company profile. BUT THIS DATA WAS MADE AVAILABLE TO ME ON THE CONDITION THAT THE COMPANY S NAME SHOULD NT FIGURES OUT ANYWHERE.

The company is leading manufacturer of MS / SS Channels, Cable Trays, Cable Rollers, Cantilever Arms, Fittings and Accessories falling under chapter 72 and 73 of the first schedule to C.E.T.A, 1985. The company makes clearances to customers on contracted price and the said clearance are made through document as specified under rule 11 of the credit rules, 2004.

The case was pressed after the following flow of events

In the month of march 2004 M/s ATS Co. KUWAIT had raised an order on the party for supply of M.S slitted coils. For manufacture of said product the main raw material used is jumbo HR coils of wider length .This is a COMMON input for goods, which the party manufacture and clear for home consumption namely, cable tray support system. For execution of this order various operations were carried out. The goods were send directly from the party s raw material supplier

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to job worker & then slitted an d re-coiled goods brought in the factory and then after notching, testing, packing and boxing the said goods are exported. In the month of July the said coils are exported from the premises of job worker after following the procedure as specified under rule (4)(6) of the credit rules and obtaining the permission Commissionarate. of the commissioner of central excise Pune III

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ISSUES INVOLVED IN THIS CASE Issue 1: The first issue is about wrong availment of Cenvat credit

Issue 2: The second issue is questioning the very basic functioning of the party by doubting whether the process undertaken by the party is manufacture or not.

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DATA COLLECTION AND FINDINGS

(1) Wrong availment of Cenvat credit?

1) The party is accused of wrongly availing Cenvat credit on HR coils used for manufacture of slitted coils. Thus it was imperative to explain the process of manufacture.

2)

It is very important to know the process of manufacture before dealing with the Cenvat Credit Rules, 2004.

3)

The party undertakes the manufacture various products such as Cable tray support system, Piping structure, AC ducting etc. These products are falling under Heading 72 & 73 to the first schedule to the Central Excise Tariff Act, 1985.

The main raw material for manufacture final product is jumbo HR coils of wider length.

5)

Since it is a common input, which is used for manufacture of Exported final product as well as the goods cleared for home consumption, the party follows a procedure, which is followed for intermediate goods in connection with manufacture of various products which is manufactured by the party. It is essential to know the process of manufacture the product exported as well as the other final products, which are manufactured by the party.

6)

Thus the exported goods that are manufactured by the party are the intermediate goods which they manufacture and it is important activity for manufacture of listed final products.

32

7)

The party undertakes the purchase of various raw dealer registered with central excise.

materials

from a

8)

The party utilizes the said raw-material is used for manufacture of the above exported product as well as intermediate goods required for manufacture of products cleared for home consumption.

9)

The coils which are purchased are delivered to job worker who is located near the dealer from whom the raw material is acquired and the same job worker carries the activity of slitting and re-rolling for the party.

10)

Since the job-worker is located near to the supplier [dealer] of raw-material, the party delivers the goods directly from the supplier to the job worker, after fuifiling the conditions prescribed under Rule (4)(5)(a) read with Rule (4)(6) .

11)

The party has received orders for same slitted coils made from the HR coils , having higher width. At such HR coils are sent directly from the dealer to job worker. Moreover the activities of slitting, re-rolling, packing and boxing are carried as per specifications to render the product in an exportable condition.

12)

Thus once the party undertakes the activities as per specifications they send the goods (export consignment) through a container to docks for further shipment to foreign countries.

13)

Similarly the party in the month of March and May 2004 had undertaken the same procedure of delivering the coils to their job worker for slitting and re-rolling activity while various other activities like notching, punching, re-rolling, packing and boxing were also done at their own factory to make

33

the product exportable.. The party also obtained proper permission from the commissioner of Central Excise, Pune III, following the procedure mentioned under Rule (4)(6) and delivered the goods directly to job worker.

14)

And hence the export consignment for which the notice was issued are cleared under rule 19 Central Excise Rules, 2002 only after submitting the declaration under form UT 1 to the Assistant Commissioner of Central Excise, Pune VI division, Pune.

15)

The party has carried out various activites as De-coiling of the larger width coil, slitting the same as per specifications, re-coiling, notching, packing, boxing and then shipping the same for export.

16)

The Board had also clarified the said activity is an activity amounting to manufacture vide Circular No. 584/21/2001-CX dated 07.09.2001.

. 17) The party also forwarded that the larger width of coils which are slitted etc. are common inputs for manufacture of final product which the party undertakes and clear for home consumption. The party emphasized that the slitted, notched coils are in fact an intermediate product for manufacture of cable trays and ducting. Thus the party tried to clarify by stating that there are some instances where it has partially exported the consignment and partially used the intermediate product ie. Slitted notched coils for manufacture of cable trays for home consumption. It also submitted the following. That the party had purchased _10000______ No. of large width coils of ____50000____Kgs. Which in turn was sent to job-worker directly from supplier of raw material and out of which__2000____ No. of slitted coils having weight of ___10000_____Kgs have been used for the production of cable trays for home consumption.

34

This definitely helps in removing the ambiguity , as the party clearly stated that the larger width coils are their inputs and slitted coils immediate product for manufacture of cable trays, ductings are an which is

further notched and worked , coiled , tested, packed and boxed for export.

The study of the definition of manufacture as defined under Section 2 (f) of Central Excise Act, 1944 which states manufacture means

Manufacture includes any process: -

1)

Incidental or ancillary

to the completion of a manufactured product;

2)

Which is specified in relation to any goods in Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture?

3)

which, in relation to the goods specified in the Third schedule involves packing or re- packing of such goods in a unit container or labeling or relabeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer .

The first aspect of the definition is to find out whether any process which is incidental and in isolation may not amount to manufacture but in totality it may be required for completion of manufacture of final product also will be treated as manufacture. For example bending, painting or plating is a process which may not bring a new article in to existence and thus in ordinarily manner it may not be treated as amounting to manufacture but if the said process is incidental for the completion of the manufacture of final product the same stands included in the definition of manufacture . One needs to check and verify the processes carried out and then form an opinion whether an article is amounting to manufacture or not.

35

The second aspect that Sub clause (ii) of section 2 f specifies that if section notes or chapter notes of Schedule to Central Excise Tariff Act, 1985 states in relation to any goods as amounting to manufacture, the said shall be taken as manufacture. For example Notes to Chapter 29 and 38 which deals with in organic chemicals clarifies under section notes that labeling or re labeling of a containers and re packing from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer shall amount to manufacture.

Third aspect, the goods in relation to goods specified in Third schedule involves packing or re packing of such goods in a unit container or labeling or re labeling of the containers including the declaration or alteration of retail price on it or adopting of any other treatment on the goods to render the product marketable to the consumer will also amount to manufacture as per the third schedule to Central Excise Tariff Act, 1985 are therefore will be considered as amounting to manufacture when the activity as defined is carried out by manufacture.

Sub clause (ii) and (iii) of the new definition brings in the concept of deemed manufacture . It stipulates that if a section or chapter note or chapter heading incorporated in schedule 8 describes any process as manufacture, it will amount to manufacture. That means factually there may not be a manufacture but because of special provision in the notes of the tariff act, can treat the same as manufacture. In short the effect of this definition is that the excise duty can be levied on activities which do not result in manufacture of new commodity or where the raw material does not undergo transformation.

Hon ble Apex Court in the case of Metal Forgings Private limited Vs. Commissioner Central Excise has held that mare process is not manufacture where there is no change in the original commodity from its original identity, there is no manufacture [1998(102) ELT A224-SC}

36

In the case of DCM relying upon decision of Union of India Vs Parle Products limited [1994(74) ELT 492(SC)] and Union of India Vs Ujagar Prints [1988(38)ELT 535(SC)] has led down that the activity or process in order to manufacture must lead to emergence of a new commercial product, different from the one with which the process started. It therefore applies that it should be an article with different name, character, name and use. In other words the process which merely changes the form or size of the same article would not be called ordinarily as manufacture

We can take the example of assembly of ceiling fan .If manufacturer procures various parts such as Motor, Blades, Grills, Wires, Covers, Hardware, switches and assembles ceiling fan. Whether this activity can be called as manufacture? No doubt, yes .As from various parts a new commodity named fan came to existence and it is having different name, use and character.

If a example of pencil which is use everyday, is sharpened .Can this activity be treated as activity of manufacture? Obviously, No .As no new commodity came into existence having different name.

In case of Empire Industries Limited Vs Union of India [1985 (20) ELT (SC)], Apex Court has held that Every type of variation of the commodity or the

finishing of the goods would not amount to manufacture unless it results in emerging of a new commercial commodity.

In case of Gramophone Company of India Vs Union of India [1999 (114) ELT 770 (SC)] the Supreme Court has held that Transformation of a substance into a

new commercial commodity known as distinct and separate commodity having its own character , use and name.

37

The activity of repair and re conditioning ordinarily does not amount to manufacture because no new goods comes in to existence. In the case of Enfield India Limited Vs Commissioner of Central Excise [1996 (88) ELT 773- tribunal] the CESTAT has held that process of up gradation, rework does not amount to manufacture.

The activity of repairs and re conditioning of heat exchangers by replacement of new tubes does not amount to manufacture. Tribunal has held in case of Suresh Engineering Works Vs Commissioner Of Central Excise [2003 (55) RLT 083 (CESTAT)]

In case of Shriram Vinyl & Chemicals [2001 (096) ECR 0001 (SC] Commissioner of Central Excise, Apex court had ruled that assembly of some new parts and some old parts cannot be equated with expression Manufacture.

The Repairing and reconditioning of old and used bearing does not amount to manufacture CESTAT has decided in case of Timken India Limited Vs CESTAT]

Commissioner of Central Excise [2004 (063) RLT ) 540

The manufacture , the definition of same is sensitive in Central Excise. Number of cases are decided in tribunals, high courts and even apex courts but still it is a gray area and one needs to carefully study the activity what he isgoing to carry and then decide whether the same is an activity of mau\nfacture as per the definition of Section 2 f

Supreme court has held that 1) Mare process is not manufacture where there is no change in the Original identity, there is no manufacture 1998 (102) ELT a 224 (SC) Cestat decision 1987 (32) ELT 0015 del

38

2)

Manufacture distinct from production every change does not amount to manufacture but only new & distinct commodity with a distinct name, character emerges.1997 (96) ELT 0507 (SC)

3)

A new product has come into existence because of some activity undertaken by the assessee without such a finding in cant be held manufacture

Thus landmark Supreme Court decision emphasize on the following

Particulars

Manufacture

Not Amounting to Manufacture

Breaking,scrapping,re-rubbing, printing Coating & lining Cutting, drilling, welding Heat treatment Cleaning, washing, mixing, dilution Kitting, packing Polishing, slitting, sharpening Straightening Testing, inspection Emptying of drums/ packing material Putting together duty paid components Repair, re-work etc. Electro plating

The definition of manufacture clarifies two points

39

The activity must be incidental or ancillary to the completion of a manufactured product, and

The any process, which is, specified in Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture.

From this definition it is crystal clear that the activity which is an incidental or ancillary to manufacture of our final product will be treated as activity of manufacture. Thus from the point of view of the party it can be seen as the process of manufacture includes decoiling, slitting, notching which as an immediate stage of manufacture of cable trays and hence there is no doubt whatsoever that these processes are necessarily manufacture and the product thus manufactured is an intermediate product in each stage.

Thus the further processing of the intermediate product is undertaken by testing oiling, notching, packing and boxing for export. The party also states that the export of intermediate product is undertaken.

As per Cenvat Credit Rules, 2004, the Input means,

Rule 2 (k) input means-

(i)

all goods, except light diesel oil, high speed diesel oil and motor spirit,

commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in

40

relation to manufacture of final products or for any other purpose, within the factory of production;

From the said Rule it is very clear that the coil which was purchased by us is an input for manufacture of final product and thus credit is allowed on same.

The party also stated that considering Rule 5 of Cenvat credit rules , 2004 was necessary

5. Refund of CENVAT credit.Where any input or input service is used in the final products which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(i)

Duty of excise on any final products cleared for home consumption or for and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:

From the said definition it is very clear one can avail the credit on inputs and if he clear the intermediate product for export he can utilize the credit so availed on inputs used for manufacture of such intermediate products for payment of Excise duty on final products cleared for Home Consumption. Not only this the definition goes beyond this and it allows CASH REFUND if such adjustment is not possible.

41

Thus it presented itself by utilizing the benefit of above section , so that it can be absolved from those allegations.

(iii)

The party also provided the reference of the following case: Hon ble CESTAT-Delhi in the case of CCE Vs. Hindustan Everest Tools Limited reported in 2004 (176) ELT 209, in this case it was held that Screw driver in semi-finished condition purchased from outside parties and various processors viz. dipping of handle in acetone solution, magnetizing the blade and treating screw driver with rust preventing oil, etc. undertaken Modvat credit sought to be rejected on the ground that such processes not amount to manufacture - Respondents clearing goods on payment of duty - Once Revenue is levying duty and collecting the same, it is not open to them to claim that processes undertaken by respondents do not amount to manufacture - Further, respondents submission that Rule 57F(4) of

erstwhile Central Excise Rules, 1944 provides for removal of inputs as such on reversal of Modvat credit accepted - Credit not deniable - Rules 57A and 57AB ibid - Rule 3 of Cenvat Credit Rules, 2004. [para 4]

The party also stated that even if the process undertaken by it is not treated as manufacture , however from the above stated case but taking relevance from the above mentioned case the credit availed by the part cannot be denied

Thus it was imperative on the part of the party to explain whether the slitting of jumbo coils of wider length into required smaller pieces amounts to manufacture or not?

(A)

The very objective of the party is to make the product marketable and is not only restricted to slitting the jumbo coil into smaller ones. Thus numerous activities other than slitting are carried out by the party which are:

42

(1)

Slitting of wider coil into required smaller width

(2)

This activity is important as in this case the customer specifications.

slitting is carried as per

(3)

After slitting coil is deburred & notched.

(4)

The activity of winding has been carried out after the notching of the coils

deburring &

(5)

The winded coils are then inspected & requirements.

packed as per customers

After packing the coils are dispatched to the customer.

(B)

Thus from the above procedure the party made an attempt to state that it doesn t indulge itself in the activity of slitting alone but undertakes it as per customer specifications to make it marketable. And the activity of making a product marketable is nothing but manufacture. As the very activity carried out by the party result in a new product known in market as slitted coils. It also illustrated the reference of the case of TISCO Vs Union of India , wherein it is claimed by TISCO that manufacture is not complete until the process of slitting and cutting is carried. TISCO also paid duty on strips after sharing & slitting & claimed no refund for the same. No proof of marketability of cold rolled strips which is an essential item of manufacture [2004 (164) ELT 372 (SC) ]

(C)

Thus this is what the party stated, that it undertakes the activity of making marketable product which is nothing but manufacture, so thereby making a plea that the proceeding undertaken against it should be dropped

43

(D)

It also took the reference of the following cases to make its position more clear: where in it was held that Process of Cutting / Slitting of Jumbo Rolls of Aluminum Foils to shape and size, packed and cleared for home consumption held to have a distinct identity and amounts to manufacture.

Black Diamond Breveres Ltd. Vs CCE Calcutta

1994 (69) ELT 572 (T)

Gramophone Co. of India Ltd. Vs CC Calcutta

1999 (114) ELT 770 (T)

(E)

Hon ble Apex Court

in the case of Kores India Ltd vs Govt. of India

reported in 2004 (174) ELT 007 has held that slitting of jumbo coils/rolls into smaller quantity to make the product marketable amounting to manufacture. Thus by stating the above points the party stated that the process undertaken by it amounts to manufacture and Cenvat credit availed by it on the coils is correct as per the provisions of the Cenvat credit rules.

(2)DOES THE ACTIVITY UNDERTAKEN BY THE PARTY AMOUNTS TO MANUFACTURE AND IF YES THEN CAN THE DEPARTMENT STILL ISSUE NOTICE QUESTIONING THE PROCESS? The party put forth the following points.

(1)

The Central Board of Excise & Customs vide its circular no. 584/21/2001 CX dtd. 07.09.2001., Clarified the matter in connection with the activity of slitting & rolling whether amounting to manufacture or not. The Board had clearly issued the clarifications that the said activity is amounting to manufacture.

44

(2)

Since Board had clarify the issue in the year 2001 itself the activity of slitting of coils in to sheets or lesser width strips amounting to manufacture and the activity carried out by us in accordance with the Circular issued by Board and thus the same is amounting to manufacture and thus the credit availed by us on the inputs used is legal and as per the provisions of law.

(3)

As the said activity is stated above is manufacture, can Excise Authorities issue the Notice to Show Cause when the Circular issued by Board is in force at relevant time?

(a)

The party stated that it was important to concentrate upon the settled legal position that the circulars and clarifications issued by Central Board of Excise and Customs ( CBEC) is binding on departmental officers and they cannot take any contrary view or stand .

(b)

The party also put forward a land mark decision of Hon ble Supreme Court larger bench in the case of Dhiren Chemical Industries Vs. CCE, Vadodara [2002 (143) ELT 019 (SC) wherein it was held that regardless of the interpretation placed by it on that phrase, if there were circulars which had been issued by the Central Board of Excise and Customs which placed a different interpretation upon that phrase, that interpretation would be binding on the Revenue . annexed the copy of the same decision It also

(c)

The Hon ble Apex Court again in the case of Dabar India Limited Vs. CCE, Meerut [2003 (157) ELT 129 (SC) ] has

45

relying upon the its own decision in the case of Dhiren Chemical Industries held that Whichever way we look at it the reasoning of the Tribunal cannot be sustained. That the circular is binding on the Revenue Authorities cannot be disputed in view of the well established law summarized in Collector of central Excise, Vadodara v. Dhiren chemical industries reported in [2002 (139) ELT 3 (SC) ]

(d)

The Apex Court in the case of Mahavir Aluminium Limited V/s. CCE, Jaipur has held that Department is bound by its Circulars issued by the Central Board of Excise and Customs [1999 (114) ELT 371 (SC)

(e)

In the case of Sharma Chemical Works Vs. CCE Calcutta, Hon ble Supreme Court had again made it clear that the Revenue bound by its own circular [2003 (56) RLT 123 (SC)]

The copy of the said decision was also attached (f) In the case of Kalyani Packaging Industries Vs. Government of India, Hon ble Apex court had again held that Circulars would be binding upon department . [ 2004 (062) RLT 821 (SC]

Hon ble Tribunals had also has held the same pronouncements that the Departmental Circulars/Instructions are binding on Departmental officers. We also rely on following decisions of Hon ble Tribunals.

2004 (60) RLT 456 (CESTAT-Mum) : India Fibre Bag Mfg Co Vs. CCE, Mumbai

46

2003 (56) RLT 314 (CESTAT

Che) : Suvarna Florex Ltd. Vs. CC, Chennai

2005 (56) RLT 331 (CESTAT- Kol) : Bengal Tools Ltd. Vs. CC, Calcutta

The part also stated that the Circulars/Instructions issued by Board are effective from the date of its publication in the official gazette & the circular which was issued by department on 07.09.2001 stating that the slitting activity is amounting to manufacture was effective from this date and the same was withdrawn by the Board only on 2nd of March,2005 as this circular was withdrawn by Board on that date vide Circular No. 811/08/2005 CX dated 02.03.2005 and the Notice issued

by the department is without authority of law and it needs to struck down.

It is a settled legal position that Circulars issued by C.B.E. & C. are binding on the departmental authorities and they cannot take a contrary stand. It is also settled law that Change in stand of the Department by amendments/fresh Circulars - Period prior to change to be governed by the earlier circular which was in force at the relevant point of time.

The party took the reference of the following case

In the case of Paper Products Limited Vs. CCE [1999 (112) ELT 765 (SC)]

Circulars issued by C.B.E. & C. are binding on the departmental authorities and they cannot take a contrary stand - Department cannot repudiate a Circular issued by the Board on the basis that it was inconsistent with a statutory provision - However assessee can contest the validity or legality of such Departmental Circulars or Instructions - Department do not have a right to file an appeal against the correctness or binding nature of a Circular - Department s actions have to be consistent with the Circulars - Consistency and discipline are of far greater importance than winning or losing Court proceedings - Section 37B of the Central Excise Act, 1944. [para 4 & 5]

47

Circulars by Board - Change in stand of the Department by amendments/fresh Circulars - Period prior to change to be governed by the earlier circular which was in force at the relevant point of time (para 6)

Appeal by departmental contrary to Board s Circulars - Department do not have a right to file an appeal against the correctness of binding nature of the Circular issued by the Board - All actions of the revenue department have to be consistent with the Circular which was in force at the relevant point of time Sections 35, 35B, 35L and 37B of the Central Excise Act, 1944.

Demand contrary to Board s Circulars - Show cause notice or consequential demand are ab initio bad if they are contrary to the existing Circulars of the Board - Sections 11A and 37B of the Central Excise Act, 1944. [para 6]

1997 (94) ELT 003 H. M. Bags Manufacturer Vs. CCE

Any action under Section 37B of the Central Excise Act is effective from the date of its notification or publication, therefore the Board s circular dated 24-9-1992 issued under Section 37B, re-classifying the goods, is effective from 5-11-1992 when the Trade Notice for the same was issued, consequently any demand in the present case cannot be raised for any date prior to 5-11-1992 and the time limit as provided under Section 11A is not available to the department. This conclusion is reinforced by use of the word henceforth by the Board. [para 2]

Departmental Clarification - Circulars issued by Central Board of Excise & Customs under Section 37B of Central Excise Act effective from the date of their notification or publication - Any demand for duty cannot be raised for a period prior to the date of the publication of the such circular/ instructions - Section 11A of the Central Excise Act, 1944. [para 2]

48

Hon ble CESTAT also in the following decisions had held that the Circulars issued by C.B.E. & C. are binding on the departmental authorities and they cannot take a contrary stand and Change in stand of the Department by amendments/fresh Circulars - Period prior to change to be governed by the earlier circular which was in force at the relevant point of time. 2004 (063) RLT 0754 : Premier Polysacks (P) Ltd Vs. CCE 2003 (57) RLT 183 : Southern Switch Gear Limited Vs. CCE 2004 (163) ELT 121 : Arvind Chemi Synthetics Pvt. Limited Vs. CCE 2004 (60) RLT 456 : India Fibre Bag Mfg. Company Vs. CCE

The party also took the aid of the Circular which clarifies the slitting amounts to manufacture was in force from 07.09.2001 to 02.03.2005 and the same is binding on departmental officers, if any stand taken by the departmental officers and any demand raised prior to issuance of new circular withdrawing the earlier circular is not legal and not legal.

Whether can department recovered interest under Section 11AB and impose penalty under Section 11AC of the Act?

The very base of this notice was whether the activity carried by the party amounts to manufacture or not. The party was rightly following the instructions of Board circular and the various decisions along with decision of Hon ble Apex Court in the case of Tata Iron & steel Co. Limited held that the slitting, re rolling of coil to make it marketable amounts to manufacture. Thus emphasizing upon the fact that the payment of penalty imposed on the party should be dropped. The party also put forward the reference the board dated 07.09.2001 which states that that the activity of slitting & re-rolling amounts to manufacture was withdrawn by board only on 02.03.2005. As it is well settled legal position that the

49

circular is only prospective and not retrospective considering all these situation where there is problem of interpretation of statue. It is well settled position that penalty should not be imposed if Assessee acted on bona fide belief.

The part also provided the reference of decision in

Tribunal Larger Bench in the

case of ITEL INDUSTRIES PVT. LTD. Versus Commissioner of Central Excise Calicut in this case it was held that Penalty - Imposition of - Question of Interpretation of law*penalty not imposable under Section 11AC of Central Excise Act, 1944 - No reasons given for imposition of penalty under Rules 173Q and 210 of erstwhile Central Excise Rules, 1944 - Penalty set aside. [para 7(g)] 2004 (163) E.L.T. 219 (Tri. Bang - LB.) -

The following reference were also forwarded by the party wherein

In case of

bona fide dispute of law viz. Availability of exemption under Notification etc., imposition of penalty is not called for

2002 (146) ELT 118 (CEGAT

EZB) : Bharat Wagon & Engineering Co. Limited

V/s. Commissioner of central Excise, Patna

2002 (51) RLT 145 (CEGAT Central Excise, Chandigarh

ND) : Swaraj Mazda Limited V/s. Commissioner of

2002 (49) RLT 349 (CEGAT Central Excise, Mumbai

WZB) : Virlon Textile Mills V/s. Commissioner of

Thus stating that the penalty imposed should be reconsidered

It is also a well settled legal position that penalty under Section 11AC & Interest under 11AA & 11AB is not imposed when non-payment is not due to

suppression of the facts and that too with a reason of fraud, mis-statement,

50

collusion etc. The party insisted that the following decisions be referred wherein it was held that penalty should not be imposed where there is no malafide intention to evade duty.

2003 (151) ELT 198 2003 (54) RLT 496 2002 (52) RLT 943 2002 (50) RLT 012 2002 (50) RLT 292

Flex Industries Limited Kamla Dials & Devices Limited Aurobindo Pharma Limited G. S. Enterprises S. B. Packing Limited Nagpur Alloys Castings Limited

2002 (50) RLT 873 (SC) 2002 (48) RLT 431 2002 (143) RLT 543 2002 (134) ELT 504 2002 (139) ELT 562 2001 (130) ELT 181 2002 (140) ELT 227 2001 (45) RLT 895 2000 (121) ELT 400 2000 (121) ELT 738 2000 (91) ECR 569 2000 (117) ELT 320 2001 (134) ELT 679

Titan Industries Limited Asha Pavro Electronics Pvt. Limited Stellar Chemical Labs. Pvt. Limited Sober Plastics Pvt. Limited Jamna auto Industries. Eicher Demm Sub Zero Ice Cream Nahar Spinning Seth Computers Bhallai Conductors TTK Pharma. Apollo Tyres Limited

The reference of the decision in the case of Siemens Limited vs. CCE, Mumbai VI. In this case it was held that

Penalty - Mandatory Penalty - Cenvat/Modvat - Clearance of inputs as such Credit having not been taken wrongly by reason of fraud, wilful misstatement, collusion or suppression of facts or contravention of any of the provisions of the Act or Rules made there under with intent to evade payment of duty - Further,

51

duty having been paid even before issue of any written demand, provisions of Rule 57-I(2) of erstwhile Central Excise Rules, 1944 not attracted - Rule 57-I(4) ibid - Rule 15 of Cenvat Credit Rules, 2004. [para 2(a)]

[2004 (176) E.L.T. 299 (Tri. - Mumbai)]

Thus by presenting these points the party requested that by considering the above points the charges should be dropped

The party once again emphasized that the said activities are cleared by them are amounting to manufacture on the basis of the Circular issued by the Board which were in force in relevant period. The Board had withdrawal the said circular only on 02.03.2005 and till the time the circular which states that the activity of slitting, amounts to manufacture was in force. The Notice issued by department when the circular was in force and as per the Decision of Hon ble Apex Court in the case of Paper Products Limited & H. M. Bags Manufacturer, the department cannot raise a demand before the withdrawal of the circular and if any demand is raised, it will be without any support of law and need to be struck down. We request your honor to consider our case in the light of the said decisions and drop the proceedings initiated against us.

52

Thus the aggrieved party submitted the following

The activity carried out by party is not an activity of trading but an activity of manufacture as per the said legal position No amount of Rs. 2, 00,000/- availed by party as Cenvat Credit should be recovered from us

No penalty should be imposed on party under Rule (13) (1) of the Cenvat Credit Rules, 2002 and Rule 15 of Cenvat Credit Rules, 2004.

No Interest should be recovered from party under the provisions of Rule 12 of Cenvat Credit Rules, 2002 & Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Act

Thus insisting that the above allegations be re considered.

53

CONCLUSION
1) The accusation about wrong availment of Cenvat credit made on the party is basically wrong because the according to the definition of manufacture stated above an activity incidental or ancillary to manufacture of final product will be treated as activity of manufacture. In this case process of manufacture again can be seen as a process of de coiling, slitting, notching etc are intermediate stages of manufacture of cable trays, ducting etc. and thus no doubt these activities are as per the said definition,. 2) Thus on further processing the intermediate product by testing the same, oiling, notching, packing and boxing to make it suitable for export. Moreover the exported article is the one which came into existence in the intermediate stage. 3) In addition to this the reason that Cenvat credit is legally claimed is because the coil which is purchased is an input for manufacture of final product and thus credit is allowed on it. 4) Moreover whenever any input or service is used in final products which are cleared for undertaking as the case may be or used in the intermediate products cleared for export or used in providing output service which is exported the Cenvat credit in respect of these input or services so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of excise duty on any final product cleared for home consumption or for export on payment of duty : or service tax on output service. And where such adjustment is not possible the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the central government notification. Thus from this it is very clear that one can avail credit on inputs and if he clears the intermediate product for export he can utilize the credit so availed on inputs used for manufacture of such intermediate products for payment of excise duty on final products cleared

54

for home consumption . not only this the definition goes beyond this and it allows cash refund if such adjustment is not possible 5) Thus justifying that the party was correct in availing Cenvat credit and hence payment of interest and penalty was out of question as the party will be liable to pay it only when it had wrongly availed Cenvat credit.

55

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