2024 (9) TMI 1779 - AT - Customs

Denial of CENVAT Credit - process amounting to manufacture or not - conversion of used waste empty toner cartridges into compatible cartridges - violation of provision of IGCRDMEG Rules 1996 and demand of customs duty under Section 28(4) of the Customs Act 1962 - HELD THAT - The process of conversion of used Waste Empty Toner Cartridge into Compatible Cartridge brings in a new product and the process undertaken by the appellant changes the basic character of used Waste Empty Toner Cartridge and a marketable Compatible Cartridge emerges. The appellant is also providing warranty and affixing labels with an assured shelf life. However as per the decision relied by the Learned AR in the matter of Domino Printech India Pvt. Ltd. 2019 (2) TMI 1386 - CESTAT CHANDIGARH the activity carried out by them is only relabeling of imported printing ink reservoir before sale without any process and considering such activity Tribunal held that it does amount to manufacture. However considering the above it is found that the activity carried out by the appellant amounts to manufacture. Further as evident from the record the Appellant had informed the concerned authority regarding their intention to manufacture the final product and by incorporating the final product registration certificate was issued on 18.02.2010. Further audit was regularly conducted and the only objection is regarding the valuation - Hon ble Supreme Court in the matter of Tecumseh Products India Ltd. Vs. Commissioner 2004 (10) TMI 627 - SC ORDER had held that repairing of defective compressors by replacing stators amount to manufacture as assessee were carrying out full range of processes such as shaping varnishing and insulation for bringing into existence the stator and this range of process carried out by them was exactly the same as the ones which are carried out for the stators which were manufactured out of new stack of laminations. Further as evident from the returns filed by the Appellant entire activities were brought to the notice of the Respondent from time to time. Hence the allegation of non-compliance is also factually incorrect. The activity carried out by the appellant amounts to manufacture. Since the other issues regarding demand of Custom duty denial of Cenvat credit and penalty imposed are only based on the finding that the activity carried out by the appellants does not amount to manufacture they are also unsustainable. The impugned orders are set aside - Appeal allowed.

Summary

ISSUES:

Whether the activity of converting used waste empty toner cartridges into compatible cartridges amounts to "manufacture" under relevant excise and customs laws.Whether denial of exemption and CENVAT credit availed on inputs used for the said activity is justified if the activity does not amount to manufacture.Whether the issuance of a combined show cause notice demanding duty under both Customs Act, 1962 and Central Excise Act, 1944 is legally permissible.Whether the appellant violated the provisions of Customs (Import of Goods at Concessional Rate of duty for Manufacturing of Excisable Goods) Rules, 1996 (IGCRDMEG Rules) by not using imported goods for the intended purpose.Whether the adjudicating authority had jurisdiction to demand customs duty and reverse CENVAT credit where import and manufacturing activities fall under different commissionerates.Whether, alternatively, if the activity does not amount to manufacture, the removal of inputs should be treated as removal as such under Rule 3(5) of the CENVAT Credit Rules, 2004, and whether reversal of input service tax credit is required.

RULINGS / HOLDINGS:

The activity of converting used waste empty toner cartridges into compatible cartridges "amounts to manufacture" as the process changes the basic character of the used cartridges and results in a new marketable product with an assured shelf life and warranty.Since the activity amounts to manufacture, the denial of exemption and CENVAT credit availed on inputs is "unsustainable" and the demand for reversal of CENVAT credit is not justified.The issuance of a combined show cause notice under different statutes is permissible as "there is no restriction under any provision of law for demanding customs duty and the CENVAT in the same show cause notice."The allegation of contravention of IGCRDMEG Rules, 1996 is "unsustainable" because the imported toner was exclusively used for manufacturing the compatible cartridges, consistent with the purpose of import under the Rules.The adjudicating authority has jurisdiction to adjudicate on the demand for customs duty and reversal of CENVAT credit despite imports occurring in a different commissionerate, as supported by precedent.Alternatively, if the activity does not amount to manufacture, the removal of inputs must be treated as removal as such under Rule 3(5) of the CENVAT Credit Rules, 2004, and reversal of input service tax credit is not required.

RATIONALE:

The Court applied the statutory definition of "manufacture" including Section Note 6 of Section XVI, which states that "conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article ... into complete or finished article shall amount to 'manufacture'."The Court relied on established precedents affirming that processes which change the essential character of goods or bring into existence a new product amount to manufacture, including decisions where replacement of parts and assembly constituted manufacture.The Court rejected the contention that mere relabeling or minor processing amounts to manufacture by distinguishing the facts of the present case where extensive dismantling, cleaning, replacement, assembly, testing, and labeling were undertaken.The Court recognized that the appellant had disclosed the manufacturing activity to the authorities and had paid excise duty on the cleared products, with no objection raised by the authorities during audits except on valuation, supporting the legitimacy of the manufacturing claim.The Court held that the combined show cause notice is valid as the law imposes no bar on simultaneous demand under Customs and Central Excise Acts.The Court referenced relevant rules and case law to conclude that reversal of CENVAT credit is not warranted where manufacture is established, and even if manufacture is not established, Rule 3(5) of CENVAT Credit Rules provides for treatment of removal of inputs as removal as such without reversal of input service tax credit.The Court noted no doctrinal shift but reaffirmed the principle that the essential character and transformation of goods are determinative of manufacture, consistent with Supreme Court rulings such as Tecumseh Products India Ltd.