Cenvat credit cannot be denied on inputs solely because they had erroneously been entered as finished goods in RG-1 register

While hearing an appeal against an Order-in-Appeal sustaining an Order-in-Original, denying Cenvat credit to the Assessee in respect of input goods used to manufacture final products, the Kolkata CESTAT observed that Cenvat credit could not be denied on such inputs, solely because they had erroneously been entered as finished goods in the RG-1 register.

A Division Bench of Mr.  Muralidhar, Member (Judicial), and Mr. K Anpazhakan, Member (Technical), noted that the Assessee had complied with the provisions of Rule 3(5) of the Cenvat Credit Rules 2004, which provided that when inputs on which Cenvat credit has been taken, are removed as such from the factory, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs.

It was observed in this regard that the Excise duty paid by the Assessee far exceeded the amount of Cenvat credit being claimed on the inputs. Hence the Bench found no grounds for the Assessee to reverse Cenvat credit again.

The Appellant-Assessee was represented by Mr. Rahul Dhanuka, Advocate, whereas the Respondent-Revenue was represented by Mr. PK Ghosh, DR.

The Assessee is engaged in the manufacture of dutiable final products, comprising Calcined Petroleum Coke (CPC) and Carbon Paste, with Raw Petroleum Coke (RPC) being its principal input.

In the relevant period, RPC was procured from M/s Indian Oil Corporation against Central Excise invoice and the same was cleared on payment of duty to M/s Universal Hydrocarbon Company Limited (UHCL) for manufacture of CPC. M/s UHCL availed the Cenvat credit equivalent to the amount of Central Excise duty paid on the quantity of RPC so sent by the Assessee. After processing, M/s UHCL cleared the CPC to the Assessee on payment of duty, under the cover of excise invoices and the Appellant availed the Cenvat credit on the same.

Thereafter, the Assessee further undertook processing of mixing of different qualities of their manufactured CPC, sizing, quality check and packaging and cleared the same, on payment of duty, to customers. In the relevant period, the final products cleared by the Assessee were cleared by the Assessee both on FOR as well as on ex-factory basis.

In respect of FOR Sales, the transportation charges were forming a part of the sale price of the goods and the Assessee was discharging excise on such sales price. In respect of ex-factory sales, the Appellant arranged transportation on behest of the customers and the same was separately collected from the customers.

In such cases, Excise duty was being paid on the transaction value excluding the freight component – The audit of the records maintained by the Assessee was conducted by the Audit team of Central Excise Commissionerate Patna and Audit Report alleged that transportation charges amounting to Rs. 93, 27,049/- was collected by them towards delivery of goods to different customers attract central excise duty @ 16%, amounting to Rs. 15, 22,175/-.

It was also alleged by the Audit that CPC received by the Assessee from UHCL has been entered by the Assessee as a final product in RG-1 register and therefore, CENVAT credit of Rs. 56,84,435/- taken by them on the CPC received from M/s UHCL is not admissible as the same is not input.

Based on the said Audit Report, a Show Cause Notice dated 30.06.2009 was issued to them central excise duty of Rs.15,22,175/- on the alleged ground of non-inclusion of transportation charges in the value of final products. It was also proposed to deny the Cenvat credit of Rs.56, 84,435/- taken by them on the CPC received from M/s UHCL, as it was not an input. The Notice also proposed to levy interest and impose penalty.

The Notice was adjudicated by the Adjudicating Authority vide Order-in-Original dated 26.08.2011 wherein the demands made in the Notice were confirmed along with interest and penalty. Aggrieved against the subject order, the Assessee has filed the present appeal.

On considering the contentions of both parties, the Tribunal observed that the Department had not questioned the duty payment by UHCL on the CPC. There was also no dispute regarding the receipt of the duty paid inputs into the factory. Once the duty has been paid by the assessee and the materials were received into the factory, Cenvat credit could not be denied.

 Further, even if the activities carried out by them do not amount to manufacture, Cenvat credit shall be allowed in terms of Rule 16 of the Central Excise Rules, 2002, the Bench noted.

Reference was made to Rule 16(2) of the Central Excise Rules, 2002 which stated that in circumstances where the process does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken at the time of receipt of the goods.

In the present case, the Appellant has paid much more central excise duty than the CENVAT Credit availed by them on the CPC received from UHCL. Therefore, CENVAT credit availed cannot be denied on the ground that they were not inputs. Even if they were considered as ‘inputs’, Rule 3(5) of CENVAT Credit Rules, 2004 provides that when inputs on which CENVAT credit has been taken, are removed as such from the factory, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs.

In the present case, the Appellant has paid much more central excise duty than the CENVAT Credit availed by them on CPC received from UHCL which would be clear from the statement annexed to the compilation. In that event, the Appellant cannot be asked to reverse the CENVAT Credit once again. Hence the credit availed by the Appellant cannot be denied on the ground that it has been entered as finished goods in their RG-1 and hence it is not an input, the Bench noted.

With these observations, the Bench quashed the demands confirmed against the Assessee. The penalty was set aside as well.

Cause Title – M/s Graphite India Ltd vs CCE [Excise Appeal No. 990 of 2011 / 2023-Enterslice-4-CESTAT-Kol]

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