2014 (3) TMI 521 - AT - Central Excise

Cenvat Credit - denial of cenvat credit on the ground that activity undertaking by the assessee not amount to manufacture - process of printing and laminating the bare polyester / metalised film - whether an individual and distinct product has come into existence - manufacturing of packaging material falling under Chapter 39 and other final products, falling under Chapters 47, 48, 74, 76 and 84 of the Central Excise Tariff Act, 1985 - Held that - It is clear that the appellant after purchasing the bare polyester/ metalised film on payment of duty, first subject those film to printing as per the requirement of the customer and thereafter those films are laminated either in two layers or three layers, thus the aforesaid process changes the character of the bare polyester film (inputs) in terms of its user as also the thickness and lamination falling within the definition of manufacture as defined under Section 2(f)- The department having accepted the excise duty on the final product cannot be permitted to deny cenvat credit on the inputs used for the manufacture of the final product on a technical plea of department - Following decision of Markwell Paper Plast Pvt. Ltd. vs. Commissioner of Central Excise, Noida 2012 (7) TMI 290 - CESTAT, NEW DELHI - Decided in favour of assessee.

Issues Involved:

1. Whether the process of lamination and printing of plastic films amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
2. Whether the appellant is entitled to avail CENVAT Credit on inputs used in the manufacture of laminated products.
3. Whether the appellant is liable to pay duty and Education Cess on the finished goods cleared for home consumption and export.
4. Whether the amounts paid by the appellant as Central Excise duty and Education Cess should be treated as deposits and transferred to the Consumer Welfare Fund.
5. Whether the appellant is liable to pay interest and penalty under relevant provisions of the Central Excise Act and CENVAT Credit Rules.

Detailed Analysis:

1. Whether the process of lamination and printing of plastic films amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944:

The appellant contended that the process of converting plastic films into packaging materials involves significant alterations, resulting in a new and distinct product known in the market as "packaging materials." This process includes printing on plastic films, lamination using adhesives, and further processing to create a final product suitable for packaging various commodities. The appellant argued that this transformation meets the definition of "manufacture" under Section 2(f) of the Central Excise Act, 1944. The tribunal supported this view, distinguishing it from the Supreme Court's ruling in Metlex India Pvt. Ltd., where mere lamination did not amount to manufacture. The tribunal relied on the earlier Supreme Court decision in Laminated Packings (P) Ltd., which held that lamination resulting in a new marketable product amounts to manufacture.

2. Whether the appellant is entitled to avail CENVAT Credit on inputs used in the manufacture of laminated products:

The appellant utilized CENVAT Credit for duty paid on inputs used in the manufacturing process. The Revenue argued that since the process did not amount to manufacture, the appellant was not entitled to CENVAT Credit. However, the tribunal, referencing the Markwell Paper Plast Pvt. Ltd. case, held that the process undertaken by the appellant did amount to manufacture, thereby entitling them to avail CENVAT Credit on the inputs used.

3. Whether the appellant is liable to pay duty and Education Cess on the finished goods cleared for home consumption and export:

The appellant had been paying excise duty on the finished goods for home consumption and export. The Revenue issued show-cause notices demanding recovery of CENVAT Credit and duty, arguing that the process did not amount to manufacture. The tribunal, however, concluded that the appellant's process did constitute manufacture, thereby validating the duty payments made by the appellant on the finished goods.

4. Whether the amounts paid by the appellant as Central Excise duty and Education Cess should be treated as deposits and transferred to the Consumer Welfare Fund:

The Revenue contended that the amounts paid by the appellant as duty and Education Cess should be treated as deposits and transferred to the Consumer Welfare Fund since the process did not amount to manufacture. The tribunal, rejecting this contention, held that since the process did amount to manufacture, the duty payments were valid and should not be treated as deposits.

5. Whether the appellant is liable to pay interest and penalty under relevant provisions of the Central Excise Act and CENVAT Credit Rules:

The show-cause notices also demanded interest and penalties under Rule 14 of the CENVAT Credit Rules, 2004, and Section 11AB of the Central Excise Act, 1944. The tribunal, having concluded that the appellant's process amounted to manufacture and that they were entitled to CENVAT Credit, found no basis for imposing interest and penalties. Consequently, the tribunal set aside the impugned order and allowed the appeal with consequential relief.

Conclusion:

The tribunal concluded that the process of lamination and printing undertaken by the appellant amounted to manufacture under Section 2(f) of the Central Excise Act, 1944. Consequently, the appellant was entitled to avail CENVAT Credit on inputs used, and the duty payments made were valid. The tribunal set aside the impugned order, rejecting the Revenue's demands for recovery, interest, and penalties, and allowed the appeal with consequential relief.

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