Decided on August 19,2015

Lsr Speciality Oil P. Ltd. Appellant

Referred Judgements :-



P.K.JAIN,J - (1.)THE brief facts of the case are that the appellants are engaged in the manufacture of lubricants and chemical additives. The appellant has entered into toll agreement with M/s. Indian Additives Ltd. (IAL for short) and as per the agreement raw materials are directly supplied to the appellant for tolling activities and after conversion of the raw material, appellant sells the same to the customers of IAL One of the raw materials which is imported is polymer.
(2.)The said polymer is used in two different streams. First stream is for manufacture of lubricating oil wherein appellant add the said polymer in the base oil and after manufacture of the lubricating oil, the same is cleared classifying under Chapter 27 as lubricating oil on payment of appropriate duty. There is no dispute as far as use of polymer in the manufacture of the lubricating oil and payment of duty of such lubricating oil is concerned. In the second stream, a part of the polymer imported is cleaned, repacked, relabelled and thereafter sold as chemical additives for lubricating oil. The polymer when imported is classified under Chapter 39. However, the same polymer after repacking and relabelling is cleared under Chapter 38 under 3811 1900 or 3811 2900. The dispute in the case is relating to the goods so cleared. The appellant is clearing the goods as a manufactured product and paying duty under Chapter 38. Revenue's contention is that the imported goods are classifiable under Chapter 39 and the process of cleaning, repacking and relabelling does not amount to manufacture and thus there is no manufacture of "chemical additives for lubricating oil" and the goods are being cleared as such and is to be considered as "the input cleared as such" and the appellant was required to reverse the Cenvat credit availed at the time of importation. It was also observed that the Cenvat credit availed at the time of importation is much higher than the duty paid at the time of clearance as chemical additives for lubricating oil. Revenue issued demand notice for the period February, 2007 to October, 2011 to reverse the credit as per Rule 3(5) of Cenvat Credit Rules, 2004, as the process undertaken by them does not amount to manufacture, hence the inputs have been cleared as such. The other ground was that the credit availed at the time of importation is more than the amount of duty paid at the time of clearance. Further the appellant has wrongly classified the product as chemical additives under Chapter 38. The demand was made for the differential amount of credit availed at the time of importation and duty paid at the time of clearance. The case was adjudicated by the Commissioner who confirmed the demand, imposed penalty under Section 11AC and also imposed penalty of Rs. 2 lakhs each on appellant Nos. 2 & 3. Aggrieved by the said order, the appellant is before us.
He ld. counsel for tHe appellant submitted that having collected excise duty revenue cannot deny tHe Cenvat credit. It was furtHer submitted that tHe appellant has collected duty on tHe goods cleared from tHe factory on tHe grounds that tHe process undertaken amounts to manufacture and once tHe activity is recognised by tHe department as manufacture, tHere is no justification for reversal of credit in terms of Rule 3(5). It was furtHer submitted that tHe classification described by tHe appellant has not been disturbed by tHe adjudicating authority which indicates tHe original input has undergone change. THe ld. counsel relied upon following decision:

"(a) Hino Motors Sales India P. Ltd. - : 2014 (299) E.L.T. 49

(b) Foam Techniques Mfg. (I) P. Ltd. - : 2015 (317) E.L.T. 266

(c) CCE v. Creative Enterprises -, 2009 (235) E.L.T. 785 - Affirmed by Supreme Court, 2009 (243) E.L.T. A120

(d) CCE v. M.P. Telelinks Ltd. -, 2004 (178) E.L.T. 167

(e) CCE v. Ajinkya Enterprises - : 2013 (294) E.L.T. 203

(f) Ashok Enterprises -, 2008 (221) E.L.T. 586

(g) Super Forgings & Steels Ltd. -, 2007 (217) E.L.T. 559

(h) Steumpp ScHedule & Somappa Ltd. - : 2005 (191) E.L.T. 1085."

2.2 THe second submission of tHe ld. counsel was that tHe quantification of duty is not correct as tHe duty has been quantified on tHe basis of total duty suffered divided over total quantity of imported polymer.

2.3 THe next submission of tHe ld. counsel was tHe extended period of limitation has been invoked which is not invocable as tHe appellant was filing ER1 return regularly indicating tHe utilisation of tHe Cenvat credit for payment of excise duty. It was submitted that in such a situation extended period of limitation cannot be invoked in view of tHe following decisions:

"(i) Moser Baer India Ltd. - : 2014 (36) S.T.R. 815

(j) Swastik Engineering -, 2010 (255) E.L.T. 261

(k) Jammu & Kashmir Cements Ltd. -, 2014 (314) E.L.T. 334

(l) Jindal Stainless Steelway Ltd. - : 2014 (310) E.L.T. 194

(m) Essar Steel India Ltd. - : 2015 (317) E.L.T. 713"

It was also submitted that tHe return filed by tHe assessee is required to be scrutinised by tHe officer as per tHe requirement of CBEC Manual tHerefore at this stage it cannot be said that tHe extended period of limitation would be applicable.

2.4 It was also submitted that tHe personal penalty was imposed on Ramesh Babu and Arokia Samy, Sr. excise officer. It was also submitted that tHey are only employees and acted in bona fide belief that tHe process amount to manufacture and Hence no penalty need be imposed on tHem.

(3.)LD . AR, on the other hand, submitted that it is not disputed by the appellant that they are only cleaning and relabelling the goods. The goods imported falls under Chapter 39 and the activities of repacking and relabelling will not amount to manufacture. It was also submitted that there was no question of changing the classification of the goods by them. Ld. AR further submitted that it was only during audit in the factory that it was realised that the appellant did only repacking and relabelling which does not amount to manufacture and change in classification of the appellant is incorrect. It was also submitted that after the said objection, the appellant has changed the classification and also started clearing such goods as inputs cleared as such after reversal of duty under Rule 3(5) of Cenvat Credit Rules, 2004. It was further submitted that the perusal of the monthly return would indicate that the appellant was availing the credit on imported inputs. The return did not indicate the details of the imported inputs or the classification. Further, at the time of clearance all that was indicated is that their product was chemical additives falling under Chapter 38 and from the return filed, no body can make out that the appellant was clearing the inputs as such and thus there was a suppression of fact and the extended period of limitation is correctly invoked and the appellant are liable to pay penalty under Section 11AC. It was further submitted that both the officials were looking after day -today work and there was no reason for them to change the classification of the goods while clearing these. Penalty has therefore been correctly imposed.

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