Laminating Plastic Films Qualifies as Manufacture: CESTAT Allows CENVAT Credit, Quashes ₹1.37 Crore Excise Demand [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that laminating plastic films amounts to manufacture and that CENVAT credit is admissible. The Tribunal set aside an excise duty demand of Rs. 1.37 crore along with interest and penalty.

Kapoor Print Pack India Pvt. Ltd., the appellant, manufactures printed plastic laminated rolls. They availed CENVATcredit on duty-paid inputs and used this credit to discharge duty on their finished products. A show cause notice was issued in December 2009 proposing to deny credit of Rs. 1.37 crore utilized between May 2007 and May 2008.

The Revenue relied on the Supreme Court’s decision in Metlex India Pvt. Ltd. (2004), which held that lamination of plastic films does not amount to manufacture. The Commissioner of Central Excise, Rohtak, confirmed the denial of credit, ordered recovery with interest, and imposed an equivalent penalty.

The appellant’s counsel argued that the process of laminating and printing plastic films resulted in new packaging materials, which were commercially known products. They relied on Tribunal decisions in Dhruv Industries Ltd. and Markwell Paper Plast Pvt. Ltd., which had been affirmed by the Supreme Court, to show that lamination and metallization amounted to manufacture.

The appellant’s counsel further argued that after 1 March 2008, the Finance Bill specifically amended the tariff notes to deem lamination as manufacture, so the denial of credit for the period after this amendment was unjustified.

The appellant’s counsel also pointed out that the department had already accepted duty on the final products, and it could not deny credit on inputs while keeping the duty on outputs. On limitation, he argued that the issue was interpretational and there was no intent to evade duty, so the extended period could not be invoked.

The revenue’s counsel argued that the Supreme Court in Metlex India had clearly held that lamination did not amount to manufacture. Since no manufacture took place, credit on inputs could not be allowed.

The two-member bench comprising Justice Dilip Gupta, President, and Member (Technical) observed that the department had accepted the appellant’s duty payments through ER-1 returns and never objected during the relevant period.

The tribunal explained that later rulings, unlike Metlex India, recognized lamination and metallization as manufacture, producing distinct marketable products. It pointed out that the department’s case failed to address how to treat the excise duty already paid on final products.

The tribunal observed that the dispute was interpretational, and the extended period could not be applied. The tribunal held that laminating plastic films amounts to manufacture, that CENVAT credit was admissible, and that the demand of Rs. 1.37 crore with interest and penalty was unsustainable. The appeal was allowed with consequential relief.

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