, Member (J)]. - These seven appeals are against separate Orders-in-Original. Inasmuch as Appeal Nos. E/1099/2008 & E/718/2009 are against Orders-in-Appeal dated 21-7-2008 and 12-1-2009 relating to the aggregate total period from March, 2005 to August, 2007 upholding the denial of Cenvat credit by the adjudicating authorities through Orders dated 19-1-2008 and 23-5-2007 on the ground that credit of Cenvat was not admissible since the activity of de-coiling of HR/CR coils and cutting & slitting thereof into specific sizes as per the design of M/s. Twin Metal Products Pvt. Ltd. (SEZ Unit) and carrying out pickling and oiling did not amount to manufacture. Appeal No. E/715/09 is against Order-in-Appeal dated 12-1-2009 upholding the rejection of refund claim of Cenvat credit, attributable to supplies made to the said units in SEZ, by adjudicating authority vide Order-in-Original dated 31-3-2008, on the ground that the activities undertaken by the appellants did not amount to manufacture. Other four appeals are against separate Orders-in-Appeal upholding separate Orders-in-Original rejecting rebate of duty paid on the said goods supplied to the said Unit in SEZ on the same ground.

2. The facts, succinctly stated, are as under :

2.1 The appellants receive HR/CR coils falling under Tariff Item No. 7208 38 40 under the cover of duty paying documents and duty paid thereon is taken as credit of Cenvat.

2.2 The said coils are subjected to the process of de-coiling and cutting & Slitting as per the drawing and design supplied by the customer i.e. M/s. Twin Metal Products Pvt. Ltd., Madras Export Processing Zones, Special Economic Zones and thereafter, the same are subjected to the process of pickling and oiling before the same are supplied to the said SEZ Unit. Over and above, sheet metal parts are also manufactured.

2.3 By various show cause notices during the period from 2-3-2005 onwards, show cause notices were issued proposing to deny the credit of Cenvat on the ground that the aforesaid activity undertaken by the appellants did not amount to manufacture. For the said reasons, rebate of duty paid on the goods supplied to SEZ unit was also denied. In some of the appeals, adjudicating authority had sanctioned the refund of Cenvat credit attributable to goods supplied to SEZ Unit but the same were appropriated against the denial of credit and the same, on challenge by Dept., were accepted by Commissioner (Appeals).

2.4 Hence these appeals.

3. Ld. Advocate appearing for the appellants submits as under :-

(A)    By their letters dated 1-11-1996, 8-4-2005, 13-6-2005, 21-6-2005, 13-3-2006, etc., the appellants have been persistently in correspondence with the Department requesting to finally clarify whether the composite activity of de-coiling and cutting & slitting, pickling and oiling amounted to manufacture or not. The appellants’ stand had been that C.B.E. & C., vide Circular No. 584/21/2001-CX., dated 7-9-2001, had clarified that slitting of HR/CR coils or iron and steel sheets into strips amounted to manufacture. The Circular was withdrawn by C.B.E. & C. vide its Circular No. 811/8/2005-CX., dated 2-3-2005 in view of Delhi HC judgment in Faridabad Iron & Steel Traders Association. [ (Del.)]

The said Circular did not refer the additional process like pickling, oiling, etc. and the same would not apply. However, Dept. had not issued any clarification in response to their representations and hence, their paying of duty on the final products and taking credit was proper and legal.

(B)    It was only on 14-1-2010, C.B.E. & C. vide its Circular No. 911/1/2010-CX., dated 14-1-2010 clarified as under :

“3. In view of the above, following instructions are issued :-

(i)      In cases where the process undertaken by an assessee indisputably does not amount to manufacture, the department should inform the assessee about the correct legal position and advise him not to pay duty and not to avail credit on inputs.

(ii)     If the assessee has already paid duty, and in a situation where there is no manufacture as held by the Courts subsequently, and facts of the case are covered by the provisions of Section 5B of the Central Excise Act, 1944, the assessee is at liberty to approach the Central Govt, for issue of appropriate notification for regularization of the Cenvat credit availed.”

C.B.E. & C. vide its Circular No. 927/17/2010-CX., dated 24-6-2010, first time clarified that mere undertaking the process of oiling and pickling as preparatory steps do not amount to manufacture. Based on the said Circular dated 24-6-2010, Asst. Commissioner, vide its letter No. PVI/RC/49/Ajinkya/09-10, dated 24-6-2010 informed the appellants that “Vide Circular No. 911/01/2010-CX., dated 14-1-2010 issued by OSD (CX-8) under F.No. 267/116/2009-CXB it has been clarified that the process of cutting of HR/CR coils of iron or non-alloy steel into sheets or slitting into strips of lesser width; of slitting of sheets into strips will not amount to manufacture and therefore the products are not required to pay the C. Excise duty.”

In view of this, till 14-1-2010, the appellants’ payment of duty and taking credit was proper and legal. The period involved in the present case is March, 2005 to August, 2007.

(C)    It was only on 24-6-2010, C.B.E. & C. had implemented Tribunal’s judgment in the case of Resistance Alloys reported in (T) and Bothra Metal Industries [reported in (T)] wherein Tribunal had held that the process of pickling being preparatory process to drawing of wire did not amount to manufacture. As instructed by C.B.E. & C., vide its Circular dated 14-1-2010, the appellants also have taken steps by making representation dated 7-9-2010 to the Commissioner for issue of Notification under Section 5B and the Commissioner by his letter issued from F.No. VGN(30)75/Ajinkya/10-11 dated 7-10-2010 has recommended for issue of Notification under Section 5B. However, the Advocate prayed for decision on the merits.

(D)    The appellants had the following legal alternatives :

(i)       Since the appellants are manufacturing press metal parts and also undertaking the aforesaid disputed activity, inputs being common, the appellants’ case would be covered by sub-rule (5) of Rule 3 of CCR, 2004 whereunder, the appellants were required to pay duty equal to credit taken and clear such inputs (steel sheets duly pickled and oiled) under the cover of central excise invoices. In the present case, the appellants have paid duty more than the credit taken and cleared such goods under the cover of central excise invoices and hence, their case is covered under Rule 3(5) of CCR.

(ii)     Rule 16 of CER, 2002 permits taking credit of duty paid on the goods brought to any factory for being re-made, refined, reconditioned or for any other reason, treating the same as inputs under the CENVAT Credit Rules, 2002 and utilize this credit according to the said rules. If the activity to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken. In the instant case, assuming that the said activity is not amounting to manufacture, the appellants were required to pay duty equal to credit taken and they have paid duty more than the credit taken and hence, their case is covered.

(iii)    The next alternative could have been, to apply for and obtain the dealer’s registration and issue cenvatable invoices in favour of the customers by the appellants. In the instant case, when the dispute arose, the appellants applied for and were issued dealers registration in December, 2008.

Even if the inputs are subjected to non-manufacturing process, the procedure available to first/second stage dealer of issuing cenvatable invoices is permissible, in support of which reliance was placed on Board’s Circular No. 139/2/2004-CX.4, dated 1-3-2006.

(E)    That prohibition from payment of duty contained under sub-section (1A) to Section 5A of Central Excise Act, 1944, brought on Statute Book from 13-5-2005, would apply only to cases where goods are exempted under Notification issued under Section 5A(1) and such exemption is granted absolutely. The said barring provision would not apply to the dispute of excisability or otherwise.

(F)     In support of the appellant’s claim that activity undertaken by them amounts to manufacture, the appellants submit as under :

(i)       Note 6 to Section XVI and XVII under which Chapters 84 to 89 are covered would support the activity as amounting to manufacture. As per the said note, even an incomplete or unfinished blank, that is an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into a finished article or a part, into complete or finished article would amount to manufacture.

(ii)     HR/CR coils were classified under Tariff Item No. 7208 38 40, while the final product has been classified under Tariff Item No. 7208 26 90 and hence, when inputs and final products are classified under two sub-headings, the same would amount to manufacture.

(G)    In support of the appellants’ contention that when duty paid at the time of clearance is equal to or higher than the credit availed, the same is to be treated as reversal of credit and hence, no further reversal of credit required, reliance was placed on the following judgments :

1.       Crompton Greaves Ltd. - (T)

2.       Vickers Systems International Ltd. - (T) = (T)

3.       PSL Holdings Ltd. - (T)

4.       Shetron Ltd. - (T).

(H)   Once duty on the final products has been accepted by the Dept., credit is not deniable, even if the activity does not amount to manufacture, based on the following judgments :

1.       Ashok Enterprises - (T)

2.       Super Forgings - (T)

3.       S.A.I.L - (T) = (T)

4.       M.P. Telelinks Ltd. - (T)

5.       Stumpp Scheule - 2005 (69) RLT 786 (T) = (T)

6.       Shivali Udyog (I) Ltd. - (T)

7.       Heat Shrink Technologies Ltd. - (T)

8.1     Creative Enterprise - (Guj.)

8.2     Upheld by Supreme Court - .

(I)      The duty paid on their final products is more than the credit taken in view of value addition and hence, it is a duty neutral exercise. When there is no revenue implication and leads to duty neutral situation, demand is not sustainable, based on the following judgments :

1.       Coca-Cola India Pvt. Ltd. - (S.C.)

2.       Jamshedpur Beverages - (S.C.)

3.       Super Forgings & Steels Ltd. - (S.C.)

4.       Narmada Chematur Pharmaceuticals Ltd. - (S.C.)

5.       MRF Ltd. - (T)

6.       P.T.C. Industries Ltd. - (T).

(J)      Entire dispute relates to supply of the said disputed goods to M/s. Twin Metal Products Pvt. Ltd., a unit situated in SEZ. The Ministry of Finance vide Circular No. 6/2010-Cus., dated 19-3-2010 has clarified in para 4 that “Therefore, it is viewed, that the settled position that rebate under Rule 18 of the Central Excise Rules, 2002 is admissible for supplies made from DTA to SEZ does not warrant any change even if Rule 18 does not mention such supplies in clear terms.” In the said Circular, it was further clarified that the Circular No. 29/2006-Cus., dated 27-12-2006 reported in 2007 (207) E.L.T. T35 was issued after considering all the relevant points and it was clarified that rebate under Rule 18 is admissible when the supplies are made from DTA to SEZ. The Circular also lays down the procedure and the documentation for effecting supply of goods from DTA to SEZ, by modifying the procedure for normal export. Clearance of duty free material for authorized operation in the SEZ is admissible under Section 26 of the SEZ Act, 2005 and procedure under Rule 18 or Rule 19 of the Central Excise Rules is made applicable mutatis mutandis to give effect to this provision of the SEZ Act, as envisaged under Rule 30 of the SEZ Rules, 2006.

(K)    Disputed goods are further subjected to various processes to make them parts of vehicles by unit situated in SEZ and then exported by them. The supplies to unit to SEZ are at par with physical exports outside India and as clarified by the Board the export procedure under Rules 18 and 19 and Notifications issued thereunder would apply.

(L)    As per Rules 18 and 19 of CER, 2002, even if the process is not amounting to manufacture, rebate/export under Bond is permissible in view of use of the expression “any goods”, “excisable goods” etc. therein.

(M)   Para 1.2 and Para 1.3 (Part VI of Chapter 7) and Para 1.2 and Para 1.3 (Part V of Chapter 8) of C.B.E. & C.’s Excise Manual it has clarified that Rules 18 and 19 would apply to excisable goods (dutiable or exempt) as well as non-excisable goods. According to said Manual, materials is permitted to be used for manufacture or processing. In other words, any processing not amounting to manufacture (such as packing, blending etc.) would be eligible for the benefit under Notifications issued under Rules 18 and 19 of CER.

(N)   It is the settled position of law that credit of Cenvat is admissible on the inputs used in exempt goods exported, based on the following judgments of Hon’ble Bombay High Court, Delhi High Court, Himachal Pradesh High Court and Tribunal :

(i)       Repro India Ltd. v. UOI - (Bom.)

(ii)     Punjab Stainless Steel Industries v. CCE - (T)

(iii)    CCE v. Punjab Stainless Steel - (Del.)

(iv)    CCE v. Drish Shoes Ltd. - (H.P.)

(v)      Arvind Mills v. CCE - (T)

(O)    That in view of the above, since the entire dispute relates to supply of goods to SEZ Unit, even if the activity is not amounting to manufacture, credit of Cenvat on inputs is admissible.

4. On the other hand, learned SDR, Shri Manish Mohan, vehemently argued, taking recourse to the reasoning of the Orders of ld. Lower Authorities, as summarized below :

(i)      That when payment of duty is without authority of law, question of allowing credit on inputs does not arise.

(ii)    That Pickling and Oiling process, as indicated in his note (submitted), would substantiate that the said activity did not amount to manufacture.

(iii)   That Tribunal in Resistance Alloys (I) Ltd. reported in (T) and in P.V. Sanghvi reported in (T) has held that processes of pickling and annealing, etc., being processes preparatory to cold drawing process, would not amount to manufacture.

(iv)   That C.B.E. & C. Circular No. 831/8/2006-CX., dated 26-7-2006 would substantiate that how Govt. issues Notifications for regularizing the credit and in the absence of such Notification in the present case, credit is not admissible.

(v)     That Apex Court in Metlex (I) Pvt. Ltd. reported in (S.C.) in para 9 has held that “But merely because a party mistakenly files a Classification List does not mean that he has to pay duty, if in law, he is not bound to pay duty. If there is no manufacture then the mere fact that a Classification List has been filed would not make them liable to pay duty.”

(vi)   That the Rule of equity can be applied only by High Court/Supreme Court and cannot be exercised by Tribunal.

(vii)  That the judgments relied upon by the appellants would not apply, in view of Hon’ble Bombay High Court judgment in the case of CCE v. Nicholas Piramal (India) Ltd. reported in (Bom.), wherein it has been held that law has to be strictly followed.

(viii) That the judgment in Crompton Greaves (supra) relied upon by the appellants, has been distinguished by Tribunal in Velere Power India Pvt. Ltd. reported in (T).

(ix)   Ld. SDR also prayed for decision on merits, in spite of representation for issuance of Section 5B Notification.

5. In rejoinder, ld. Advocate submitted as under :

(a)     That the issue in Velere Power India Pvt. Ltd. (supra) was whether duty equal to Cenvat taken is to be paid under Rule 3(5) of CCR, or duty on transaction value is payable when the activity undertaken did not amount to manufacture. Rather in that case, differential duty was demanded, as the assessee therein had paid less duty by paying duty on transaction value while the credit taken on inputs was higher. As against, in the present case, duty paid by appellants is higher than the credit taken. Therefore the ratio of that judgment would not have any relevance.

(b)     That the ratio in P.V. Sanghvi (supra) does not apply, as, in that case the issue as to whether mere process of pickling and annealing would amount to manufacture or not was decided, while in the present case, a composite process of de-coiling, cutting & slitting, pickling and oiling process were undertaken and in spite of repeated representations, Dept. clarified only on 24-6-2010.

(c)     That the issue in Metlex (I) Pvt. Ltd. (supra), was whether assessee is barred from taking a plea of not amounting to manufacture when he had paid duty on the mistaken belief of activity amounting to manufacture and the Supreme Court permitted to take that plea and hence, would not be relevant.

(d)    That the issue before Bombay High Court in Nicholas Piramal, (supra), was for the goods not specified under Rule 6(3)(a), reversal was permissible or 8% of the value of exempt goods was payable and the admissibility of credit when goods not amounting to manufacture when cleared on payment of duty, was not an issue.

(e)     That judgments directly on the issue when have not been challenged by the Dept. the same would have binding effect.

Accordingly it was prayed for allowing the appeals.

6. We have considered the detailed arguments of rival sides. On perusal of records, we find that the undisputed fact in this case is that the appellants are engaged in the activity of de-coiling of HR/CR coils, cutting and slitting thereof into specific sizes as per design of their buyer and carrying out pickling and oiling thereon. It is also not disputed that as held by various judicial pronouncements that activity of de-coiling of HR/CR coils, cutting and slitting thereof into specific sizes and carrying out pickling and oiling thereon does not amount to manufacture. Therefore, the issue before us is that whether the CENVAT credit taken by the appellants on HR/CR coils which were cleared by them on payment of duty, after the process of de-coiling, cutting and slitting into specific sizes and thereafter carrying out pickling and oiling is required to be reversed or not.

7. The learned SDR submits that as per law, the appellants were required not to take CENVAT credit on these goods i.e. HR/CR coils as their activity does not amount to manufacture. Therefore, the CENVAT credit taken by them is wrong and in that event, they are required to reverse the CENVAT credit. He further submitted that the duty was paid without any authority of law. Therefore, the question of allowing the credit on input does not arise. He relies on the decision of Velere Power India Pvt. Ltd. (supra), wherein it was held by this Tribunal that CENVAT credit was taken wrongly and duty equal to CENVAT credit is required to be paid under Rule 3(5) of Cenvat Credit Rules when the activity does not amount to manufacture. In that case the assessee took the credit on the inputs and after processing of inputs, the final products were cleared on lower value. The activity did not amount to manufacture but the duty was paid less at the time of clearance of the goods at lower value although the CENVAT credit was taken more than the duty paid. Therefore, differential duty was asked to be paid. Therefore, we are of the view that the ratio laid down in the decision of Velere Power India (supra) supports the case of the appellant. This is not the fact in this case before us.

8. In the matter in hand before us, the appellants have paid more duty than the credit availed after value addition. Therefore, the decision of Velere Power India (supra) is not relevant to facts of this case. The learned SDR also relied on the decision of Metlex (I) Pvt. Ltd. (supra), wherein the Apex Court has held that merely because the party mistakenly filed the classification list, does not mean that he had to pay duty, even if he is not bound to pay duty. If there is no manufacture then mere the fact that the classification list has been filed would not make them liable to pay duty. We have seen the decision of Metlex (I) Pvt. Ltd. (supra). In that case the facts are that the assessee wrongly filed their classification list on the ground that their activity amounts to manufacture and paid duty thereon. The Hon’ble Apex Court held that this does not bar them when their activity, does not amount to manufacture and they have mistakenly filed the classification list on the understanding that their activity is amounting to manufacture. The Hon’ble Apex Court, therefore, held that the assessee is not barred from taking the plea of not amounting to manufacture when they have paid the duty on mistaken belief that their activity amounts to manufacture. Therefore, the said decision is also not relevant to facts of this case. The learned SDR, further, relied upon the case of Nicholas Piramal (supra), wherein the facts of the case are that whether the Tribunal was right in allowing the assessee for reversal of credit taken instead of insisting upon the assessee to pay the amount equal to 8%/10% of total price of exempted goods as per Rule 6(3)(b) of the Cenvat Credit Rules, 2002. In that case, the Hon’ble High Court held that if a manufacturer is using common input for dutiable as well as for exempted goods, in that case the assessee is required to make separate account of inputs which are going in manufacturing of dutiable goods and separate account for inputs which are going in manufacturing of exempted goods. But, in case the assessee does not maintain separate account of inputs, in that case the assessee is required to pay 8%/10% of the amount of exempted goods. In that scenario, the Hon’ble High Court held that the assessee is required to reverse 8%/10% of the amount. Therefore, the facts of that case are not relevant to the facts of this case.

9. We have seen from the facts of this case where as per Circular dated 7-9-2001, the activity of slitting of HR/CR coils into strip was amounted to manufacture. It is admitted fact that the said Circular was withdrawn on 2-3-2005. Thereafter, the appellants sought clarification through various letters to the department to clarify whether the composite activity of de-coiling of HR/CR coils, cutting and slitting into specific sizes and thereafter pickling and oiling amounting to manufacture or not. That was clarified only on 24-6-2010. In the case of Resistance Alloys (supra) and P.V. Sanghvi (supra), wherein it was held that process of pickling and oiling would not amount to manufacture, but in the case in hand before us, the appellants were undertaking composite activity of de-coiling of HR/CR coils thereafter cutting and slitting into specific sizes and after that pickling and oiling taken place, which was clarified by the department only on 24-6-2010 saying that the said activity does not amount to manufacture. Therefore, following instructions issued through Circular No. 911/1/2010-CX., dated 14-1-2010, the appellants approached to the Commissioner for issuance of appropriate rectification for regularization of the CENVAT credit availed as their activity does not amount to manufacture and they have paid duty on clearance of the goods more than the credit availed. The Commissioner has also considered the representation of the appellant and forwarded to the Board for issuance of the required notification. The Board has neither rejected the proposal of the Commissioner, nor issued the notification for regularization of credit availed. In that situation, we are of the view that the benefit of the Circular No. 911/1/2010-CX., dated 14-1-2010 is available to the appellants.

10. Further, it is the admitted fact that the appellants are the manufacturer of excisable goods also. Therefore, as per Rule 3(5) of the Cenvat Credit Rules, 2004, if the activity in question of the appellants does not amount to manufacture, the appellants are required to pay duty equal to credit taken on clearance of such inputs under cover of Central Excise invoices. As in this case, the activity of the appellants does not amount to manufacture, therefore, these inputs are cleared as such. In that event, as per Rule 3(5) of Cenvat Credit Rules, 2004 the appellants are required to pay duty equal to the credit taken thereon and the appellants have paid duty more than the credit availed.

11. The learned Advocate also relied on several case laws, wherein it was held that when duty paid at the time of clearance equal to or higher than the credit availed, the same is to be treated as reversal of credit. Therefore, no further reversal of credit is required as held by this Tribunal in the case of Repro India Ltd. (supra), Punjab Stainless Steel Industries (supra), Drish Shoes Ltd. (supra), SAIL (supra). In this case, it is admitted fact that the department has accepted duty paid by the appellants on their clearances and as per judicial pronouncement in the case of Ashok Enterprises (supra), Super Forgings (supra), SAIL (supra), M.P. Telelinks Ltd. (supra), Creative Enterprises (supra) which was upheld by the Hon’ble Apex Court that once duty on final products has been accepted by the department in the case, CENVAT credit cannot be denied even if the activity does not amount to manufacture.

12. Therefore in view of the above discussion, we find that the duty paid by the appellants has been accepted by the department which is admittedly more than the CENVAT credit availed by the appellants. Therefore, following the various judicial pronouncements as discussed herein above, we hold that the appellants are not required to reverse the credit. Accordingly, the appeals are allowed with consequential relief.

(Pronounced in Court on 23-6-2011)