CENVAT Credit Cannot Be Denied When Duty is accepted by Department for Manufactured Product: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that if the Department accepted duty on a manufactured product, CENVAT Credit cannot be denied.

Mangal Singh Bros. Pvt. Ltd., the appellant is engaged in processing transmission and conveyor belts. It involved cutting belts to specific sizes, inspecting them for defects, applying their own "MSB" logo, and packaging them for export.

The appellant paid a total of Rs. 31,27,075 in excise duty during this period from June 2008 to March 2013, treating the belts as manufactured goods. The appellant claimed Rs. 25,61,369 in CENVAT Credit to offset excise taxes.

The Central Excise Audit objected, arguing that the appellant company's processes did not constitute "manufacturing" since the belts were merely resized and rebranded. Consequently, the Department issued a show-cause notice and decided that the CENVAT Credit was wrongly claimed since no new marketable product was created.

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On appeal, the Commissioner (Appeals) confirmed the Department's demand for reversal of the CENVAT Credit with penalties. Aggrieved, the appellant challenged the Commissioner (Appeals)’s order before the CESTAT.

The appellant’s counsel argued that their processes of cutting to size, checking for defects, and rebranding are qualified as "manufacturing." They pointed out that the appellant had already paid a higher excise duty than the disputed credit amount, warranting a refund if their claim was denied.

The counsel relied on Ajinkya Enterprise, arguing that if excise duty on final products is accepted, CENVAT Credit should not be denied.

On the contrary, the department argued that activities did not constitute manufacturing since the belts weren't transformed into a new product and referenced CBEC guidelines, which state that activities like cutting and labeling do not amount to manufacturing unless a new, distinct product emerges.

The two-member bench comprising Suvendu Kumar Pati,(Judicial Member) and Anil G. Shakkarwar (Technical Member) observed relevant legal precedents and guidelines to determine what constitutes "manufacturing."

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The tribunal noted that the appellant had paid excise duties exceeding the disputed CENVAT Credit. Referencing the Bombay High Court in the case of Ajinkya Enterprise, the tribunal held that once excise duty is accepted, CENVAT Credit should not be denied.

Therefore, the tribunal ordered the Department to refund the reversed credit with interest, to be paid within two months. The appellant’s appeal was allowed.

To Read the full text of the Order CLICK HERE

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