Tribunal Confirms Non-Manufacture Status of Cutting/Slitting Operations and Mandates Deposit of Pseudo-Duty Under Section 11D
The Customs Excise and Service Tax Appellate Tribunal (CESTAT) Chennai Regional Bench has dismissed the appeal filed by M/s. Shree Ganesh Steel Rolling Mills Ltd., affirming the order of the Commissioner of Central Excise, Chennai-I. The Tribunal held that the processes of cutting and slitting HR/CR coils do not qualify as manufacturing activities, thereby invalidating the CENVAT credit availed by the appellant on non-manufactured goods.
The case arose when M/s. Shree Ganesh Steel Rolling Mills Ltd. ceased its manufacturing operations in May 2010 due to labor issues but continued to claim CENVAT credit on imported HR/CR coils. These coils were sent for job work to be cut and slit and then returned to the original dealers on payment of duty, which was paid using the CENVAT credit balance. The Department issued show-cause notices asserting that these activities did not constitute manufacturing and demanded reversal of the claimed credits, interest, and penalties.
The Tribunal supported the Department's stance, relying on the Delhi High Court's decision in Faridabad Iron & Steel Traders Association and the Supreme Court's affirmation, which clarified that the slitting of coils is not a manufacturing process. Consequently, the coils could not be considered as "inputs" under the CENVAT Credit Rules, 2004.
In its judgment, the Tribunal highlighted the appellant's deliberate inflation of transaction values by 60-150% to utilize lapsed credit, a practice deemed fraudulent. The Tribunal also affirmed that amounts collected as "duty" on non-manufactured goods are to be treated as deposits under Section 11D of the Central Excise Act, 1944, and must be remitted to the Government.
The Tribunal justified the invocation of the extended limitation period under Section 11A(4) due to the suppression of facts and fraudulent intent. It ruled that penalties under Section 11AC were mandatory given the deliberate contraventions by the appellant.
With this decision, CESTAT Chennai not only upholds the recovery of inadmissible credits and interest but also reinforces the strict interpretation of manufacturing activities under excise laws, emphasizing compliance with statutory provisions to avoid misuse of credit mechanisms.
Bottom Line:
Cutting/slitting of HR/CR coils does not amount to manufacture; CENVAT credit availed on non-manufactured goods is inadmissible; deliberate inflation of transaction values to encash lapsed credit is unlawful; amounts collected as "duty" on non-manufactured goods are liable under Section 11D of Central Excise Act, 1944; extended period and penalties under Section 11AC are justified due to suppression and fraudulent intent.
Statutory provision(s): Central Excise Act, 1944 Section 11D, CENVAT Credit Rules, 2004 - Rule 2(k), Rule 3(5), Rule 15, Central Excise Act, 1944 Section 11A(4), Section 11AC.
