This document is a project report submitted by Ashish D. Kulkarni in partial fulfillment of the degree of Master of Business Administration from Vishwakarma Institute of Management. The report details a case study conducted at Ameya Management Consultancy Pvt. Ltd. on excise duties. It includes an introduction, objectives, company profile of Ameya Management Consultancy which provides consultancy services in indirect taxes, and a summary of the case study findings and conclusions.

1. 1
BANSILAL RAMNATH AGRAWAL CHARITABLE TRUST S
VISHWKARMA INSTITUTE OF MANAGEMENT
KONDHWA, PUNE 411048
A
PROJECT REPORT
ON
CASE STUDY IN EXCISE
AT
AMEYA MANAGEMENT CONSULTANCY PVT LIMITED.
SUBMITTED BY
ASHISH.D.KULKARNI
MBA II
SUBMITTED IN PARTIAL FULFILMENT FOR DEGREE OF MASTER OF
BUSINESS ADMINISTRATION
DURING THE YEAR
2006-2007

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BANSILAL RAMNATH AGRAWAL CHARITABLE TRUST S
VISHWKARMA INSTITUTE OF MANAGEMENT
KONDHWA, PUNE 411048
DATE: - 20th
AUGUST 2006
CERTIFICATE
This is to certify that Mr. ASHISH. D. KULKARNI is a Bonafied
student of our Institute. He gas successfully carried out his Summer
Project Titled CASE STUDY IN EXCISE.
This is the Original study of ASHISH.D.KULKARNI and the important
sources used by him, have been acknowledged in his report.
The report is submitted in the Partial Fulfillment of Two years Full
time Course MASTER OF BUSINESS ADMINISTRATION (M.B.A.)
as per rule of PUNE UNIVERSITY.
Dr. Sharad. Joshi Prof.Mahesh Halale
(Director) (Project Guide)

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ACKNOWLEDGEMENT: -
I am very grateful to Mr. R.M Khadilkar the Proprietor and Managing
Director of Ameya Consultancy Pvt ltd. for providing me an opportunity to
complete my summer training in the Ameya Consultancy Pvt Ltd.
I avail this opportunity to give my thanks to Mr. R. M .Khadilkar
Director, and the staff for extending their support towards successful completion
of the project. In spite of their busy schedule they took out the time to answer my
queries patiently and helped me throughout the project.
My sincere thanks to all staff of Ameya Management Consultancy Pvt
Ltd. for all the cooperation and assistance to me at any time without which the
project would have been incomplete.
I am proudly indebted to my Project Guide Prof. Mahesh. Halale for all
his support and guidance towards the completion of my project.
Last but not least I am thankful to The Director, All Departmental Staff of
Vishwakarma Institute of Management and my friends for providing me the moral
support towards the completion of this project.
Ashish . D. Kulkarni

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INDEX
Sr.no Particulars Page. No.
1 Executive Summary 1
2 Objective and Scope of the project 3
3 Company s Profile 4
4 Theoretical background 15
5 Actual Case 25
7 Data collection & findings 28
8 Conclusion 50
9 Bibliography 52

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EXECUTIVE SUMMARY
A) INTRODUCTION OF THE PROJECT
The project is regarding a Show cause notice to an reputed
organization
(identity kept anonymous for the purpose of confidentiality) regarding the
contravention of the Rule 3 of Cenvat Credit Rules, 2004 for wrongly availing
and utilizing Cenvat Credit on H.R Coils meant for trading.
B) PROJECT TITLE
Case Study in Excise
C) WHY HAVE YOU CHOSEN THIS FIRM AND THIS PROJECT
I chose AMEYA MANAGEMENT CONSULTANCY PVT. LTD.
because they are the MANAGEMENT AND TAX CONSULTANTS FOR
INDIRECT TAXES IN INDIA. My choice of this project was based upon the
following factors-:
1) The selection of case study inculcated an orderly approach towards work and
helped me in understandings the intricacies pertaining to Cenvat with respect to
this case
2) It helped me a lot in clearing my concepts as well as the way in which points
are to be put up for the purpose of fighting a legal battle.
3) And last but not the least it helped me in developing an insight , and the points
that are to be concentrated upon and the points to be left out. Though the insight

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of looking a case shall improve only after continual experience but still it provided
me with the necessary launch pad.
D) LOCATION
The Address of Firm is as follows: 514, 5th
floor, Siddharth Towers,
Near City Pride Theater,
Off Karve Road, Kothrud
Pune-411029.
E) DURATION: 54 days, 1st
June, 2006 to 30th
July, 2006 .

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OBJECTIVE
TITLE
DIFFERENT OBJECTIVES-:
Primary objective-:
1) To know how to approach a case pertaining to excise and learning how
to present relevant points defending the allegations.
2) To understand the concept of Cenvat credit and the charging section of
the same.
3) To understand the situations in which Cenvat credit can be availed .
4) To know the various section relating to penalties if the Cenvat credit is
wrongly availed.
Scope -:
1) The basic condition governing this project was that all information
regarding the client on whom the case was filed will be made
available only if no information like the name of the Client company
or any information relating to its location are published by which the
identity of the company is revealed. As it would result into breach of
trust.
2) The project was limited towards understanding and putting up
relevant points for the purpose of solving case and not beyond that.

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COMPANY PROFILE
COMPLETE NAME OF THE COMPANY-: Ameya management consultancy pvt.
Limited.
ADDRESS-: 514, 5th
Floor, Siddharth Towers,
Near City-Pride theater,
Off Karve Road, Kothrud,
Pune-411029
SERVICES OFFERED-:
1) Management & Taxation Consultancy in Indirect Taxes in
India.
2) Systems [ERP like SAP, ORACLE etc.] development &
Management.
3) Computerization of Financial, materials and related
records.
4) Realization of export benefits.
5) Liaison with offices of Director General Foreign Trade,
Customs, Software Technology Parks of India,
Development Commissioner [SEEPZ, Mumbai].
6) In-house awareness/ training Programs in Indirect as well
as Direct Taxation in India.

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7) Identification of resource organization and tie up with
them in areas of logistics, warehouse management,
infrastructure providers.
Note: The Organization is aided and headed by professionals having versatile
working experience in the capacity of head of the departments like Excise,
Commercial & Stores in major Indian Corporate and MNC s for last fifteen years.
This includes areas like compliance to Central Excise & Service Tax law,
systems, dispatches and materials management.
The organization at present is engaged in soliciting advises to various
manufacturing MNC s, Industries in organized Sector and Infra-structure projects
in respect of Central Excise, Customs & Service Tax laws. It also helps to the
corporate sector for conducting in-house training programs for their employees
so as to upgrade their skills in these laws.
The organization also provides aid for developing a system, system audit, up
gradation of the system and verification of records to ensure the statutory
compliance required under various provisions of the said fiscal laws i. e. Central
Excise, Customs & Service Tax.
The organization also provides consultation in replying to the queries raised by
the Government Departments. It also provides support and assistance in legal
disputes before quasi-judicial and judicial authorities up to the Apex court in India.

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CONSULTANCY
We provide consultancy in
Indirect Taxes.
1 Central Excise Act, 1944
2 Service Tax ( chapter V of the Finance Act, 1994)
Liaison & logistics
1. With Customs, DGFT, STPI, SEEPZ
2. With infra-structure providers and logistics providers
Central Excise Act, 1944
The Central Excise Act, 1944 is one of the major revenue contributors and the
same is revenue for the union Government. The said Act allows levy and
collection of duty on the activity of production or manufacture of Excisable Goods
in India. The said tax is payable by the manufacturer of the Excisable goods. The
Central Excise Law certainly ranked as the most complicated branch of law in the
country. It has to be understood by getting conversant through an entangled and
confused mass of Central Excise Act, Central Excise Tariff Act, Central Excise
Rules, 2002, Central Excise Appeals Rules, 2001, Cenvat Credit Rules, 2004,
Central Excise (Settlement of Cases) Rules, 2001, Central Excise (Removal of
Goods at Concessionals Rate of Duty for Manufacture of Excisable Goods)
Rules, 2001, Central Excise Valuation (Determination of Price of Excisable
Goods) Rules, 2000. In addition to the above one also will have to get conversant
with around 20 Acts and Rules relating to additional duties of Excise & Cess. The
confusion further gets compounded by an astonishing number of amendments
brought about by various Notifications that are issued each year.

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penal provisions like penalty equal to the duty, Interest @ 13% P. A. on the duty
sought to be evaded etc. make it obligatory on the part of the manufacturer to
keep a cautious approach to the said act. EOUs registered with Excise
Department and related services such as procurement of CT3 s from Department,
Bonding & de-bonding, Re-warehousing Certificates, DTA Sale Permissions,
Job-Work permissions, etc.
We provide advice to the manufacturer so as to enable him to discharge the
correct duty liability to avoid litigations in future. We also extend help in defending
the case at the appropriate levels such as Commissioners (Appeals), Customs
Excise Service Tax Appellate Tribunal (CESTAT). We also extend help in
preparing periodic returns, verification of records maintained by the manufacturer
and Excise Audits in line with EA 2000.
SERVICE TAX
The Finance Act, 1994, introduced the said Tax for first time in the year
1994.Atpresent more than 90 Services, which have been brought under the tax
net. It s expected that in forthcoming years some more services also will be
brought so as to compensate the revenue loss, which Government is likely to
incur due to rationalization of rates in Customs and Central Excise. The Tax is on
the activity of providing specified services and the service provider is liable to pay
the tax the periodic returns are required to be filed.
We provide help to fulfill all the procedural requirements and also discharge
correct tax liability. We also provide service to contest the Notices to Show
Cause at various Appellate forums.
Recently Government had introduced intra-sectoral Credit. This is very important
as far as industry. We give adequate support to develop, understand the new
terminology and train staff, officers to work accordingly. Now the Excise & service

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tax is to be seen as profit center and we take proper initiative to guide industry to
keep age.
IN-HOUSE AWARENESS/TRAINING PROGRAMS
Since the policy of the Central Government is to bring broad base reasonable
taxation in the field of Direct as well as Indirect Taxes, many changes are
brought in particularly in the field of Central Excise Law. The Objective of these
changes is to simplify the procedures required to be followed by the
manufacturer. It is our experience that many number of times the execution
department like materials, stores, marketing etc. commit number of mistakes
unconsciously due to lack of awareness/Updation about the changed procedure
provided in the law. The said mistake therefore results in to litigations and penal
actions on the organization.
To avoid these mistakes arranging regular awareness programs within the
organization immensely help the company to prevent such type of mistakes. We
provide such in-house awareness programs wherein the procedures required to
be followed are explained in simple layman s language. After the awareness it
was experienced that employees brings out many practical difficulties they face
in their day-to-day working. The solution to these difficulties also helps to the
organization to make necessary modifications in its internal control system. In
majority of cases it is experienced that 90% of the procedural lapses gets
automatically solved and litigations gets reduced. The confidence of the
employee s increases and overall working becomes smooth. It is advisable to
arrange this type of programs at least two times a year to enable the staff
members to keep them selves up-to-date on the recent changes. These
programs are generally conducted in the field of Customs, Excise & Service Tax.

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SYSTEM AUDIT
Since 1986 the Central Excise Law can be looked as one of the effective tools for
the purpose of increasing the competitiveness, profitability of the organization.
The resent approach of the Government and the simplification major
implemented in law suggest on line proper system of accounting of a transaction
from its inception to the closure. Slowly the statutory records, which were
required to be maintained under various laws stands, abolished and private
records maintained by the organization are replacing the same. The
manufacturer is now law bound declare his private records maintained by him in
respect of purchases, receipt of material, storage of material, issue of material,
accounting of finished goods and removal thereof. He is also required to give the
complete details, audit trails in case the records are maintained on computers. In
short the complete details are now to be declared to the Excise Authorities. The
Excise Authorities on the basis of these declarations is likely to conduct the
audits of the company. It is therefore advisable to monitor the system periodically
so as to make it completely foolproof. It is also necessary that periodic
reconciliation if any of the various returns filed under various laws is done. Our
organization extends help in this area too.
The verification of various private records in maintained in connection with
Central Excise Law.
The method of excise audit is undergoing radical changes. The old system of
internal audit now being stands replaced by a new system called Excise Audit
2000 (EA 2000). The said system at present is introduced to certain category of
industries and slowly will be implemented to all manufacturing units. The said
system not only insures a complete transparency but also encourages voluntary
compliance. The departmental audit parties are expected to visit the organization
with advance intimation. The higher officers of the rank of Additional
Commissioner are expected to personally supervise the audit and he may

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discuss the audit observation with the senior management staff of the
organization.
The very change in approach also expects transparency in the records
maintained by the organization. It is therefore advisable to verify the records on
the basis of EA - 2000 periodically. The said verification will insure all the
procedural compliance on one hand and also can suggest a corrective action if
any which shall help the organization to make the voluntary compliance. Such
voluntary compliance will also be appreciated by the department and the audit it
self will be smooth. We extend our expertise in this field also.
SOFTWARE TECHNOLOGY PARK UNITS/ EOU S
In this area we provide services like obtainment of Customs license under
Section 56 of the Customs Act, 1962 for in bond manufacturing, execution of
Bond, obtainment of CT-3 certificates/ Procurement Certificates for duty free
procurement. Re-warehousing certificates, permission for material to be send for
job work etc. De-bonding of goods, shifting from one premises to another
premises (i.e. in bond movement).
Audit & verification of compliance with Bond Register & B-17 Bond Register
verification & guidance.

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ON-LINE HELP DESK
Updation is a key word to avoid litigations. It has been seen that many number
oftimes while taking crucial decisions help is required before the decision is
finalized. We provide such through e-mail system. The company officials at any
time can contact us through e-mail; we shall provide our expert advice as fast as
possible as but not later than 24 hours for the quarries raised. This on-line
service may help the employee to finalize his decision quickly and also on-time.
We undertake to help, guide & develop Excise, Service Tax related programs in
Oracle Apps, SAP or any ERP System To give road map for customization, bolt-
in systems which will take care for legal requirements & data management
System Development
We undertake to help, guide & develop Excise, Service Tax related programs in
Oracle Apps, SAP or any ERP System To give road map for customization, bolt-
in systems which will take care for legal requirements & data management.
Our valued clients:
Our list of clients includes more than 75 manufacturing industries, taxable service
providers and infrastructure providers. Few illustrious of them are
1. Cummins India Limited
2. Cummins Diesel Sales & Service (India) Limited
3. Nelson Engine Systems India Limited
4. Lucas TVS Limited
5. HSBC Software Development India
6. Praj Industries Limited
7. Honeywell Turbo Atomization India Limited
8. Honeywell Turbo India

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9. Husco Hydraulics Pvt. Limited
10. Spicer India Limited
11. Gabriel India Limited
12. Coro Colour India Limited
13. Siro Plast Limited
14. Mahindra Automotive Steels Limited
15. Mojj Engineering Systems Limited
16. V Cube Forge India Limited
17. Disha Technologies India Limited
18. Die-Aluminum India Limited
19. Durabuild Techniques India Limited
20. Ghatge Patil Transports Limited
21. Reinshaw Metallurgy Techniques India Limited
22. Magarpatta Township Development Co. Limited
23. Vascon Engineers Limited
24. Paranjpee Schemes Limited
25. KTR Couplings Limited
26. Mahle Filtration Systems India Limited
27. PMT Machines Limited
28. Precision Automation and Robotics India Limited
29. Seinumero Engineering India Limited
30. Seinumero Machine Tools Limited
31. Soma Textiles & Industries Limited
32. Spintex Industries Limited
33. Starion India Limited
34. Fleetguard Filters Pvt. Limited
35. Abhi Natural Products Pvt. Limited
36. Anand Technology Resource Parts {Anand Group]
37. Accurate gauges & Tools Pvt. Limited
38. Ambika Waste Management Pvt. Limited
39. Arklite Specialty Lamps Limited

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40. Accurate Sales & Services
41. Alfa Industries & Batteries
42. Am-tech Engineering
43. Aura Electronics Pvt. Limited
44. Autobat Battries Pvt. Limited
45. SpaceSaver Exports Pvt. Limited
46. Armar Industries
47. Amruta Enterprises
48. Atul Enterprises
49. Chatham Thermostat Pvt. Limited
50. Classic Strips India Pvt. Limited
51. Dhruvi Flexipack Pvt. Limited
52. Dispotronics
53. Enginetech Systems Pvt. Limited
54. Filtrum Tools Pvt. Limited
55. Filtrum Paper Products Limited
56. Glotech Mold India Pvt. Limited
57. Gadre Marine Exports Pvt. Limited
58. Hodak Engineering Pvt. Limited
59. Hardik Founders & Engineers Pvt. Limited
60. ID Technologies
61. JD Panse & Co
62. JIS Tools Company
63. Magarpatta Resort & motels Pvt. Limited
64. Magarpatta Property Management Co. Limited
65. Microversa Automisation Pvt. Limited
66. Marigold Premises Pvt. Limited
67. Pawas Canning
68. Prasanna Tours & Travels Pvt. Limited
69. Premier Engineering Company
70. Power Control Systems Pvt. Limited

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71. Prabhat Dyes & chemicals Pvt. Limited
72. Pruthvi Consultants
73. Pusalkar Michel Pvt. Limited
74. Rawat Brothers Furniture s Pvt. Limited
75. Rajmal Lakhichand Jewelers
76. RICO
77. M & G Engineers
78. Sathe & Co
79. Sanes
80. Sharad Industries
81. Sarod Engineering Pvt. Limited
82. Space N Style Pvt. Limited
83. Sardesai Auto Parts Pvt. Limited
84. Seinumero Nirman Pvt. Ltd
85. Shree Systems Pvt. Limited
86. Shonk Engineering Pvt. Limited
87. Surya Engineering
88. Surya Chem India
89. Specific alloys Pvt. Limited
90. Spectra Chemicals Limited
91. System Engineers Pvt. Limited
92. Star Krupa
93. Systems consultants Pvt. Limited
94. Transcetic Cores Pvt. Limited
95. Tushar Autoparts Pvt. Limited
96. Ultimate Engineering
97. Ultra Laboratories
98. Marigold Properties Limited
99. Vikvin Consultants Pvt. Limited
100. Whirlpool of India Limited, Pune

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THEORETICAL BACKGROUND
The show cause notice directed towards the organization was due to the violation
of Rule 3, Cenvat Credit Rules, 2004 regarding wrong availment and utilization of
Cenvat credit on H.R. Coils meant for trading. So it is absolutely important and
relevant to understand the concept of CENVAT CREDIT AND RULE 3 OF
CENVAT CREDIT RULES, 2004
CENVAT CREDIT-: The basic scheme concept of the scheme is to give instant
credit of the Central Excise Duty paid (including additional duty, special excise
duty and counter vailing duty on input) on goods used in the process of
manufacture of Final product. Such instant credit can be utilized towards the
payment of excise duty on the final product. In short, the manufacturer is
reimbursed the amount of duty paid on the components and raw materials used
in production process. The assessee is eligible to take 100% credit of the duty
paid on inputs. The manufacturer can avail the benefits of CENVAT scheme
provided that inputs and finished products are excisable commodities and within
the range of product so notified under this scheme. A manufacturer who is
availing the benefits under CENVAT scheme cannot avail benefit of proforma
credit scheme during the same financial year.

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Illustration
Final Product: A
1) Inputs used in Final Product and amount of duty paid
PARTICULARS AMOUNT
Steel 240
Aluminum 210
Components And
Consumables
250
Packing Material 100
Total Duty Paid On Inputs 800
Add: Education cess at 2% on
duty
16
TOTAL 816

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2) Final product A per unit
3) In this example total cost of Rs. 20,000 includes the amount of duty +
education cess at 2% on E.D. paid Rs. 816 on the inputs on which further excise
duty @ 16% i.e. Rs. 130.56 is levied in the cost of final product. Thus , this
amounts to duty on duty or the CASCADING EFFECT . CENVAT scheme gives
the relief to the manufacturer in respect of Duty on Duty.
4) Now lets study the effect on prices of the final product before and after
CENVAT Scheme resulted in lowering the price level, which in favor of
consumers
PARTICULARS DETAILS AMOUNT
Total Cost 20,000
Add: Profit 10% on cost 2,000
Assessable Value 22,000
Excise Duty (@ 16% ad valorem) 3520.00
Add: Education Cess @ 2% on E.D. 70.40 3590.40
25590.40

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Particulars Position before
CENVAT RS.
Position after CENVAT
Rs.
Total Cost
Credit for duty on Inputs
20,000
NIL
20,000
(-) 816
Net Cost Profit @ 10% of
cost of Assessable Value
20,000
(+) 2000
22,000
1,9184
(+)1,918
21,102
3520
(+) 70.40
3376.32
(+) 67.53
Duty at 16% (Ad
valorem)
Education Cess
CUM DUTY PRICE
25590.40 24545.85
.
IMPORTANT DEFINITIONS
1) INPUTS- Inputs covers the following:
i) All goods, except high speed diesel oil and motor spirit, commonly known as
petrol, used in or in relation to manufacture of final product whether directly or
indirectly and whether contained in the final product or not.
ii) Input includes accessories of final product cleared along with final product,
goods used as paint, or as packing material or as fuel, or for generation of
electricity or steam used for manufacture of final products or for any other
purposes, within the factory of production.
iii) Input also includes lubricating oils, greases, cutting oils, coolants.
Explanation 1 : The high speed diesel oil or motor spirit, commonly known as
petrol, shall not be treated as input for any purpose whatsoever.
Explanation 2 : Input also include goods used in the manufacture of capital goods
which are further used in the factory of the manufacturer.

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2) CAPITAL GOODS- Capital Goods means
i) All goods falling under Chapter 82,84,85,90, heading No. 68.02 and sub-
heading No. 6801.10 of the First Schedule of the Tariff Act ;
ii) Components, spares and accessories of the goods specified at (i) above;
iii) Moulds and dies;
iv) Refractories and refractory materials;
v) Tubes, pipes and fitting thereof used in factory;
vi) Pollution control equipments; and
vii) Storage tank used
Used in the factory of the manufacturers of the final products.
Equipments or appliances used in office are excluded from the definition
of capital goods and hence NO CENVAT credit can be availed on these
items. E.g. Xerox machine, computer.
To get the benefit of CENVAT credit in respect of capital goods, the only
condition is that the capital goods should be used in the factory of
manufacturer.
CENVAT credit on capital goods is not available if it is used in another
company, even if it is subsidiary company. SUMANGALA SHIPPING
MILLS Vs. C.C.E. 1999.

24. 24
3) EXEMPTED GOODS- Exempted goods means goods which are exempt from
the whole of the duty of excise leviable thereon and includes goods which are
chargeable to NIL rate of duty.
4) FIRST STAGE DEALER- First stage dealer means dealer who purchases the
goods directly from-
a) The manufacturer under the cover of an invoice issued in terms
of the
Provisions of the Central Excise Rules, 2002 or from the depot of
the said manufacturer or from premises of the consignment
agent of the said manufacturer or from any other premises from
where goods are sold by or on behalf of the said manufacturer,
under the cover of an invoice. Or
b) An importer or from the depot of an importer or from the
consignment agent of the importer
5) SECOND STAGE DEALER- Second stage dealer means a dealer who
purchases goods directly from the first stage dealer.
APPLICABILITY OF CENVAT CREDIT / SALIENT FEATURES OF CENVAT
SCHEME
1) CREDIT ON DUTY PAID TO MANUFACTURER OF EXCISABLE GOODS-
The provisions of CENVAT scheme shall apply to the manufacturer of notified
excisable goods who uses the notified inputs in the manufacture or in relation to
the manufacture of final product
2) CREDIT ON DUTY PAID ON INPUTS- The CENVAT scheme is principally
based on system of granting credit of duty paid on inputs. Under CENVAT
scheme, the manufacturer while making the payment of duty on final product can

25. 25
avail and utilize the instant credit of duty paid on inputs. This will result in
considerable result in cost of Final product. This also avoids duty on duty.
3) INPUTS MAY BE USED DIRECTLY OR INDIRECTLY- The inputs in respect
of credit of duty paid is claimed, must be directly or indirectly used in relation to
the manufacture of the final product. The input need not be present in the final
product.
4) NO CREDIT ON HSD AND PETROL- Duty paid on high speed diesel and
motor spirit (petrol) is not available as CENVAT credit, even if these are used as
raw materials.
5) NO CREDIT IF THE FINAL PRODUCT IS EXEMPT FROM DUTY- No
CENVAT credit is available if the final product is exempt from duty [Rule No. 6(1)]
6) SPECIFIED DOCUMENTS AND RECORDS- CENVAT credit can be availed
on the basis of specific documents as a proof of payment of duty on Inputs. The
manufacturer should maintain proper records for receipt, disposal, consumption
and inventory of the inputs and capital goods containing details such as value,
duty paid, person from whom inputs are purchased.
7) CENVAT SCHEME COVERS BOTH INPUTS AND CAPITAL GOODS
8) INSTANT CREDIT- Credit of duty paid on inputs can be taken instantly i.e. as
soon as the inputs reach the factory. In case of capital goods 50% credit is
available in the current year and balance 50% in subsequent financial year.
9) PROCESSES LOSSES- CENVAT credit is available on all inputs even if some
of inputs go as process loss.

26. 26
MANNER OF AVAILMENT OF CENVAT CREDIT
1) TO WHOM THE CENVAT CREDIT IS ALLOWED? - Rule 3(1) of CENVAT
credit rule states that a manufacturer or producer of final products shall be
allowed to take credit of specified duties paid on inputs or capital goods received
in the factory. CENVAT scheme has been extended to all manufactured final
products.
2) DUTIES ELIGIBLE FOR CREDIT [RULE 3(1)] - Following duties paid on
inputs are eligible for CENVAT credit.
i) Basic excise duty paid on goods specified in first schedule to C.E.T.A.
ii) Special excise duty paid on goods specified in second schedule to
C.E.T.A.
iii) Additional duty paid (CVD) paid on imported inputs.
iv) If the inputs are obtained from a 100% EOU units, units in SEZ, STP
or EHTP, the credit will be as per prescribed formula which is 50% of
(Multiplied by + (1+BCD)/ 100 x (CVD)/100.
v) Additional excise duty paid under additional duties of excise (Goods of
Special Importance Act and corresponding CVD on imported goods.
vi) Additional Excise duty paid on textiles and textile articles. If these are
imported, corresponding CVD is also eligible.
vii) National calamity contingent duty leviable u/s 136 of thee Finance Act
2001. This credit can be used for payment of NCD on inputs only and
not for any other duty. Credit of AED (GSI) and special excise duty

27. 27
can be utilized for payment of excise duty on final products and vice-
versa.
3) CENVAT CREDIT ON INPUTS LYING IN STOCK- Not withstanding any thing
contained in sub rule 1 above the manufacturer or producer of final product shall
be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in
process of inputs contained in the final products lying in stock on the date on
which any goods become excisable.
4) UTILIZATION OF CENVAT CREDIT [RULE 3(3)]- The CENVAT credit may
be utilized for the payment of any duty of excise on
a) Final product
b) Inputs
c) Capital goods
If such inputs are removed as such or after being partially processed or such
capital goods are removed. The CENVAT credit shall be utilized only to the
extent such credit is available on the 15th
day of month for payment of duty
relating to first fortnight of the month and the last day of the month for payment
of duty relating to second fortnight of the month.
5) DUTY TO BE PAID IF INPUTS OR CAPITAL GOODS ARE
REMOVED[RULE 3(4)]- If the inputs or capital goods on which CENVAT credit
has been taken, are removed from the factory, the manufacturer of the final
product shall pay an amount equal to the duty of excise which is leviable on
such goods at the rate applicable to such goods on date of such removal and on
the value determined for such goods on the date of such removal and on the
value determined for such goods under this act and such removal shall be made
under the cover of an invoice.
6) CENVAT CREDIT IN RESPECT OF FTZ/ SEZ/ EOU UNITS [RULE 3(5) a]-
CENVAT credit in respect of inputs or capital goods produced or manufactured-

28. 28
i) In a Free Trade Zone or SEZ or by 100% EOU or by EHTP or STP and
used in manufactured of final product in any place in India, shall be admissible
equivalent to the following amount-
= 50% of (Assessment Value x 1 + BCD* CVD /100
where BCD Ad valorem rate in percentage of basic custom duty and additional
duty of customs on inputs and
CVD- Ad valorem rate in % of basic custom duty and additional duty of customs
on capital goods
7) UTILIZATION OF CENVAT CREDIT IN RESPECT OF ADDITIONAL DUTY
[RULE 3(5) b]-
CENVAT credit in respect of the additional duties of excise on Textiles and textile
articles, goods of special importance, shall be utilized only towards the payment
of duty of excise leviable under the said Additional Duties of Excise Act (Textile
and Textiles Articles act or Additional Duties of Excise (goods of special
importance)
8) CENVAT IN RESPECT OF ADDOTIONAL DUTY PAID ON MARBLES OR
TILES SHALL BE ALLOWED TO THE EXTENT OF Rs. 30 PER SQ MTR
[RULE 3(b)(c)]
9) CENVAT CREDIT IN RESPECT TEXTURISED YARN NOT ALLOWED

29. 29
THE ACTUAL CASE
The Company was issued a show cause notice in which the following allegations
were made:
1) The first issue is regarding whether can the company claim setoff against
Cenvat credit amounting to Rs 200000 which was already paid by the
party as duty on inputs.
2) The second point is an extension of the first accusation, where in the party
is already accused for wrong availment of Cenvat credit, so as per the
provision of Rule 14 (CENVAT CREDIT WRONGLYTAKEN OR
ERRORNEOUSLY REFUNDED) , has been ask to pay interest on it.
Thus for which we had to put up the following points about the company profile.
BUT THIS DATA WAS MADE AVAILABLE TO ME ON THE CONDITION THAT
THE COMPANY S NAME SHOULD NT FIGURES OUT ANYWHERE.
The company is leading manufacturer of MS / SS Channels, Cable
Trays, Cable Rollers, Cantilever Arms, Fittings and Accessories falling under
chapter 72 and 73 of the first schedule to C.E.T.A, 1985. The company makes
clearances to customers on contracted price and the said clearance are made
through document as specified under rule 11 of the credit rules, 2004.
The case was pressed after the following flow of events
In the month of march 2004 M/s ATS Co. KUWAIT had raised an order on
the party for supply of M.S slitted coils. For manufacture of said product the main
raw material used is jumbo HR coils of wider length .This is a COMMON input for
goods, which the party manufacture and clear for home consumption namely,
cable tray support system. For execution of this order various operations were
carried out. The goods were send directly from the party s raw material supplier

30. 30
to job worker & then slitted an d re-coiled goods brought in the factory and then
after notching, testing, packing and boxing the said goods are exported. In the
month of July the said coils are exported from the premises of job worker after
following the procedure as specified under rule (4)(6) of the credit rules and
obtaining the permission of the commissioner of central excise Pune III
Commissionarate.

31. 31
ISSUES INVOLVED IN THIS CASE
Issue 1: The first issue is about wrong availment of Cenvat credit
Issue 2: The second issue is questioning the very basic functioning of the party
by doubting whether the process undertaken by the party is manufacture or not.

32. 32
DATA COLLECTION AND FINDINGS
(1) Wrong availment of Cenvat credit?
1) The party is accused of wrongly availing Cenvat credit on HR coils used
for manufacture of slitted coils. Thus it was imperative to explain the
process of manufacture.
2) It is very important to know the process of manufacture before dealing
with the Cenvat Credit Rules, 2004.
3) The party undertakes the manufacture various products such as Cable
tray support system, Piping structure, AC ducting etc. These products are
falling under Heading 72 & 73 to the first schedule to the Central Excise
Tariff Act, 1985.
4 The main raw material for manufacture final product is jumbo HR coils of
wider length.
5) Since it is a common input, which is used for manufacture of Exported
final product as well as the goods cleared for home consumption, the party
follows a procedure, which is followed for intermediate goods in
connection with manufacture of various products which is manufactured
by the party. It is essential to know the process of manufacture the product
exported as well as the other final products, which are manufactured by
the party.
6) Thus the exported goods that are manufactured by the party are the
intermediate goods which they manufacture and it is important activity for
manufacture of listed final products.

33. 33
7) The party undertakes the purchase of various raw materials from a
dealer registered with central excise.
8) The party utilizes the said raw-material is used for manufacture of the
above exported product as well as intermediate goods required for
manufacture of products cleared for home consumption.
9) The coils which are purchased are delivered to job worker who is located
near the dealer from whom the raw material is acquired and the same job
worker carries the activity of slitting and re-rolling for the party.
10) Since the job-worker is located near to the supplier [dealer] of raw-material,
the party delivers the goods directly from the supplier to the job worker,
after fuifiling the conditions prescribed under Rule (4)(5)(a) read with Rule
(4)(6) .
11) The party has received orders for same slitted coils made from the HR
coils , having higher width. At such HR coils are sent directly from the
dealer to job worker. Moreover the activities of slitting, re-rolling, packing
and boxing are carried as per specifications to render the product in an
exportable condition.
12) Thus once the party undertakes the activities as per specifications they
send the goods (export consignment) through a container to docks for
further shipment to foreign countries.
13) Similarly the party in the month of March and May 2004 had undertaken
the same procedure of delivering the coils to their job worker for slitting
and re-rolling activity while various other activities like notching, punching,
re-rolling, packing and boxing were also done at their own factory to make

34. 34
the product exportable.. The party also obtained proper permission from
the commissioner of Central Excise, Pune III, following the procedure
mentioned under Rule (4)(6) and delivered the goods directly to job worker.
14) And hence the export consignment for which the notice was issued are
cleared under rule 19 Central Excise Rules, 2002 only after submitting the
declaration under form UT 1 to the Assistant Commissioner of Central
Excise, Pune VI division, Pune.
15) The party has carried out various activites as De-coiling of the larger
width coil, slitting the same as per specifications, re-coiling, notching,
packing, boxing and then shipping the same for export.
16) The Board had also clarified the said activity is an activity amounting to
manufacture vide Circular No. 584/21/2001-CX dated 07.09.2001.
.
17) The party also forwarded that the larger width
of coils which are slitted etc. are common inputs for manufacture of final
product which the party undertakes and clear for home consumption. The
party emphasized that the slitted, notched coils are in fact an intermediate
product for manufacture of cable trays and ducting. Thus the party tried to
clarify by stating that there are some instances where it has partially
exported the consignment and partially used the intermediate product ie.
Slitted notched coils for manufacture of cable trays for home consumption.
It also submitted the following.
That the party had purchased _10000______ No. of large width coils of
____50000____Kgs. Which in turn was sent to job-worker directly from
supplier of raw material and out of which__2000____ No. of slitted coils
having weight of ___10000_____Kgs have been used for the production
of cable trays for home consumption.

35. 35
This definitely helps in removing the ambiguity , as the party clearly stated
that the larger width coils are their inputs and slitted coils are an
immediate product for manufacture of cable trays, ductings which is
further notched and worked , coiled , tested, packed and boxed for export.
The study of the definition of manufacture as defined under Section 2 (f)
of Central Excise Act, 1944 which states manufacture means
Manufacture includes any process: -
1) Incidental or ancillary to the completion of a manufactured product;
2) Which is specified in relation to any goods in Section or Chapter notes of
the Schedule to the Central Excise Tariff Act, 1985 as amounting to
manufacture?
3) which, in relation to the goods specified in the Third schedule involves
packing or re- packing of such goods in a unit container or labeling or re-
labeling of containers including the declaration or alteration of retail sale
price on it or adoption of any other treatment on the goods to render the
product marketable to the consumer .
The first aspect of the definition is to find out whether any process which is
incidental and in isolation may not amount to manufacture but in totality it may
be required for completion of manufacture of final product also will be treated as
manufacture. For example bending, painting or plating is a process which may
not bring a new article in to existence and thus in ordinarily manner it may not be
treated as amounting to manufacture but if the said process is incidental for the
completion of the manufacture of final product the same stands included in the
definition of manufacture . One needs to check and verify the processes carried
out and then form an opinion whether an article is amounting to manufacture or
not.

36. 36
The second aspect that Sub clause (ii) of section 2 f specifies that if section
notes or chapter notes of Schedule to Central Excise Tariff Act, 1985 states in
relation to any goods as amounting to manufacture, the said shall be taken as
manufacture. For example Notes to Chapter 29 and 38 which deals with in
organic chemicals clarifies under section notes that labeling or re labeling of a
containers and re packing from bulk packs to retail packs or the adoption of any
other treatment to render the product marketable to the consumer shall amount
to manufacture.
Third aspect, the goods in relation to goods specified in Third schedule involves
packing or re packing of such goods in a unit container or labeling or re labeling
of the containers including the declaration or alteration of retail price on it or
adopting of any other treatment on the goods to render the product marketable to
the consumer will also amount to manufacture as per the third schedule to
Central Excise Tariff Act, 1985 are therefore will be considered as amounting to
manufacture when the activity as defined is carried out by manufacture.
Sub clause (ii) and (iii) of the new definition brings in the concept of deemed
manufacture . It stipulates that if a section or chapter note or chapter heading
incorporated in schedule 8 describes any process as manufacture, it will amount
to manufacture. That means factually there may not be a manufacture but
because of special provision in the notes of the tariff act, can treat the same as
manufacture. In short the effect of this definition is that the excise duty can be
levied on activities which do not result in manufacture of new commodity or
where the raw material does not undergo transformation.
Hon ble Apex Court in the case of Metal Forgings Private limited Vs.
Commissioner Central Excise has held that mare process is not manufacture
where there is no change in the original commodity from its original identity, there
is no manufacture [1998(102) ELT A224-SC}

37. 37
In the case of DCM relying upon decision of Union of India Vs Parle Products
limited [1994(74) ELT 492(SC)] and Union of India Vs Ujagar Prints
[1988(38)ELT 535(SC)] has led down that the activity or process in order to
manufacture must lead to emergence of a new commercial product, different
from the one with which the process started. It therefore applies that it should be
an article with different name, character, name and use. In other words the
process which merely changes the form or size of the same article would not be
called ordinarily as manufacture
We can take the example of assembly of ceiling fan .If manufacturer procures
various parts such as Motor, Blades, Grills, Wires, Covers, Hardware, switches
and assembles ceiling fan. Whether this activity can be called as manufacture?
No doubt, yes .As from various parts a new commodity named fan came to
existence and it is having different name, use and character.
If a example of pencil which is use everyday, is sharpened .Can this activity be
treated as activity of manufacture? Obviously, No .As no new commodity came
into existence having different name.
In case of Empire Industries Limited Vs Union of India [1985 (20) ELT (SC)],
Apex Court has held that Every type of variation of the commodity or the
finishing of the goods would not amount to manufacture unless it results in
emerging of a new commercial commodity.
In case of Gramophone Company of India Vs Union of India [1999 (114) ELT 770
(SC)] the Supreme Court has held that Transformation of a substance into a
new commercial commodity known as distinct and separate commodity having its
own character , use and name.

38. 38
The activity of repair and re conditioning ordinarily does not amount to
manufacture because no new goods comes in to existence. In the case of Enfield
India Limited Vs Commissioner of Central Excise [1996 (88) ELT 773- tribunal]
the CESTAT has held that process of up gradation, rework does not amount to
manufacture.
The activity of repairs and re conditioning of heat exchangers by replacement of
new tubes does not amount to manufacture. Tribunal has held in case of Suresh
Engineering Works Vs Commissioner Of Central Excise [2003 (55) RLT 083
(CESTAT)]
In case of Shriram Vinyl & Chemicals [2001 (096) ECR 0001 (SC] Commissioner
of Central Excise, Apex court had ruled that assembly of some new parts and
some old parts cannot be equated with expression Manufacture.
The Repairing and reconditioning of old and used bearing does not amount to
manufacture CESTAT has decided in case of Timken India Limited Vs
Commissioner of Central Excise [2004 (063) RLT ) 540 CESTAT]
The manufacture , the definition of same is sensitive in Central Excise. Number
of cases are decided in tribunals, high courts and even apex courts but still it is a
gray area and one needs to carefully study the activity what he isgoing to carry
and then decide whether the same is an activity of maunfacture as per the
definition of Section 2 f
Supreme court has held that
1) Mare process is not manufacture where there is no change in the
Original identity, there is no manufacture
1998 (102) ELT a 224 (SC)
Cestat decision 1987 (32) ELT 0015 del

39. 39
2) Manufacture distinct from production every change does not
amount to manufacture but only new & distinct commodity with a
distinct name, character emerges.1997 (96) ELT 0507 (SC)
3) A new product has come into existence because of some activity
undertaken by the assessee without such a finding in cant be held
manufacture
Thus landmark Supreme Court decision emphasize on the following
Particulars Manufacture Not Amounting
to Manufacture
Breaking,scrapping,re-rubbing, printing
Coating & lining
Cutting, drilling, welding
Heat treatment
Cleaning, washing, mixing, dilution
Kitting, packing
Polishing, slitting, sharpening
Straightening
Testing, inspection
Emptying of drums/ packing material
Putting together duty paid components
Repair, re-work etc.
Electro plating
The definition of manufacture clarifies two points

40. 40
The activity must be incidental or ancillary to the completion of a manufactured
product, and
The any process, which is, specified in Section or Chapter notes of the Schedule
to the Central Excise Tariff Act, 1985 as amounting to manufacture.
From this definition it is crystal clear that the activity which is an incidental or
ancillary to manufacture of our final product will be treated as activity of
manufacture. Thus from the point of view of the party it can be seen as the
process of manufacture includes decoiling, slitting, notching which as an
immediate stage of manufacture of cable trays and hence there is no doubt
whatsoever that these processes are necessarily manufacture and the product
thus manufactured is an intermediate product in each stage.
Thus the further processing of the intermediate product is undertaken by testing
oiling, notching, packing and boxing for export. The party also states that the
export of intermediate product is undertaken.
As per Cenvat Credit Rules, 2004, the Input means,
Rule 2 (k) input means-
(i) all goods, except light diesel oil, high speed diesel oil and motor spirit,
commonly known as petrol, used in or in relation to the manufacture of final
products whether directly or indirectly and whether contained in the final product
or not and includes lubricating oils, greases, cutting oils, coolants, accessories of
the final products cleared along with the final product, goods used as paint, or as
packing material, or as fuel, or for generation of electricity or steam used in or in

41. 41
relation to manufacture of final products or for any other purpose, within the
factory of production;
From the said Rule it is very clear that the coil which was purchased by us is an
input for manufacture of final product and thus credit is allowed on same.
The party also stated that considering Rule 5 of Cenvat credit rules , 2004 was
necessary
5. Refund of CENVAT credit.-
Where any input or input service is used in the final products which is
cleared for export under bond or letter of undertaking, as the case may be,
or used in the intermediate products cleared for export, or used in providing
output service which is exported, the CENVAT credit in respect of the input or
input service so used shall be allowed to be utilized by the manufacturer or
provider of output service towards payment of,
(i) Duty of excise on any final products cleared for home consumption or for
and where for any reason such adjustment is not possible, the
manufacturer shall be allowed refund of such amount subject to such
safeguards, conditions and limitations, as may be specified, by the Central
Government, by notification:
From the said definition it is very clear one can avail the credit on inputs and if he
clear the intermediate product for export he can utilize the credit so availed on
inputs used for manufacture of such intermediate products for payment of Excise
duty on final products cleared for Home Consumption. Not only this the definition
goes beyond this and it allows CASH REFUND if such adjustment is not possible.

42. 42
Thus it presented itself by utilizing the benefit of above section , so that it can
be absolved from those allegations.
(iii) The party also provided the reference of the following case: Hon ble
CESTAT-Delhi in the case of CCE Vs. Hindustan Everest Tools Limited
reported in 2004 (176) ELT 209, in this case it was held that Screw driver
in semi-finished condition purchased from outside parties and various
processors viz. dipping of handle in acetone solution, magnetizing the
blade and treating screw driver with rust preventing oil, etc. undertaken -
Modvat credit sought to be rejected on the ground that such processes not
amount to manufacture - Respondents clearing goods on payment of duty
- Once Revenue is levying duty and collecting the same, it is not open to
them to claim that processes undertaken by respondents do not amount to
manufacture - Further, respondents submission that Rule 57F(4) of
erstwhile Central Excise Rules, 1944 provides for removal of inputs as
such on reversal of Modvat credit accepted - Credit not deniable - Rules
57A and 57AB ibid - Rule 3 of Cenvat Credit Rules, 2004. [para 4]
The party also stated that even if the process undertaken by it is not treated as
manufacture , however from the above stated case but taking relevance from the
above mentioned case the credit availed by the part cannot be denied
Thus it was imperative on the part of the party to explain whether the slitting of
jumbo coils of wider length into required smaller pieces amounts to manufacture
or not?
(A) The very objective of the party is to make the product marketable and is
not only restricted to slitting the jumbo coil into smaller ones. Thus
numerous activities other than slitting are carried out by the party which
are:

43. 43
(1) Slitting of wider coil into required smaller width
(2) This activity is important as in this case the slitting is carried as per
customer specifications.
(3) After slitting coil is deburred & notched.
(4) The activity of winding has been carried out after the deburring &
notching of the coils
(5) The winded coils are then inspected & packed as per customers
requirements.
After packing the coils are dispatched to the customer.
(B) Thus from the above procedure the party made an attempt to state that it
doesn t indulge itself in the activity of slitting alone but undertakes it as per
customer specifications to make it marketable. And the activity of making
a product marketable is nothing but manufacture. As the very activity
carried out by the party result in a new product known in market as slitted
coils. It also illustrated the reference of the case of TISCO Vs Union of
India , wherein it is claimed by TISCO that manufacture is not complete
until the process of slitting and cutting is carried. TISCO also paid duty on
strips after sharing & slitting & claimed no refund for the same. No proof of
marketability of cold rolled strips which is an essential item of
manufacture [2004 (164) ELT 372 (SC) ]
(C) Thus this is what the party stated, that it undertakes the activity of making
marketable product which is nothing but manufacture, so thereby making
a plea that the proceeding undertaken against it should be dropped

44. 44
(D) It also took the reference of the following cases to make its position more
clear: where in it was held that Process of Cutting / Slitting of Jumbo Rolls
of Aluminum Foils to shape and size, packed and cleared for home
consumption held to have a distinct identity and amounts to manufacture.
Black Diamond Breveres Ltd. Vs CCE Calcutta 1994 (69) ELT 572 (T)
Gramophone Co. of India Ltd. Vs CC Calcutta 1999 (114) ELT 770 (T)
(E) Hon ble Apex Court in the case of Kores India Ltd vs Govt. of India
reported in 2004 (174) ELT 007 has held that slitting of jumbo coils/rolls
into smaller quantity to make the product marketable amounting to
manufacture. Thus by stating the above points the party stated that the
process undertaken by it amounts to manufacture and Cenvat credit
availed by it on the coils is correct as per the provisions of the Cenvat
credit rules.
(2)DOES THE ACTIVITY UNDERTAKEN BY THE PARTY AMOUNTS TO
MANUFACTURE AND IF YES THEN CAN THE DEPARTMENT STILL ISSUE
NOTICE QUESTIONING THE PROCESS?
The party put forth the following points.
(1) The Central Board of Excise & Customs vide its circular no. 584/21/2001
CX dtd. 07.09.2001., Clarified the matter in connection with the activity of
slitting & rolling whether amounting to manufacture or not. The Board had
clearly issued the clarifications that the said activity is amounting to
manufacture.

45. 45
(2) Since Board had clarify the issue in the year 2001 itself the activity of
slitting of coils in to sheets or lesser width strips amounting to manufacture
and the activity carried out by us in accordance with the Circular issued by
Board and thus the same is amounting to manufacture and thus the credit
availed by us on the inputs used is legal and as per the provisions of law.
(3) As the said activity is stated above is manufacture, can Excise Authorities
issue the Notice to Show Cause when the Circular issued by Board is in
force at relevant time?
(a) The party stated that it was important to concentrate upon
the settled legal position that the circulars and clarifications
issued by Central Board of Excise and Customs ( CBEC) is
binding on departmental officers and they cannot take any
contrary view or stand .
(b) The party also put forward a land mark decision of Hon ble
Supreme Court larger bench in the case of Dhiren Chemical
Industries Vs. CCE, Vadodara [2002 (143) ELT 019 (SC)
wherein it was held that regardless of the interpretation
placed by it on that phrase, if there were circulars which had
been issued by the Central Board of Excise and Customs
which placed a different interpretation upon that phrase, that
interpretation would be binding on the Revenue . It also
annexed the copy of the same decision
(c) The Hon ble Apex Court again in the case of Dabar India
Limited Vs. CCE, Meerut [2003 (157) ELT 129 (SC) ] has

46. 46
relying upon the its own decision in the case of Dhiren
Chemical Industries held that Whichever way we look at it
the reasoning of the Tribunal cannot be sustained. That the
circular is binding on the Revenue Authorities cannot be
disputed in view of the well established law summarized in
Collector of central Excise, Vadodara v. Dhiren chemical
industries reported in [2002 (139) ELT 3 (SC) ]
(d) The Apex Court in the case of Mahavir Aluminium Limited
V/s. CCE, Jaipur has held that Department is bound by its
Circulars issued by the Central Board of Excise and
Customs [1999 (114) ELT 371 (SC)
(e) In the case of Sharma Chemical Works Vs. CCE Calcutta,
Hon ble Supreme Court had again made it clear that the
Revenue bound by its own circular [2003 (56) RLT 123
(SC)]
The copy of the said decision was also attached
(f) In the case of Kalyani Packaging Industries Vs. Government
of India, Hon ble Apex court had again held that Circulars
would be binding upon department . [ 2004 (062) RLT 821
(SC]
Hon ble Tribunals had also has held the same pronouncements that the
Departmental Circulars/Instructions are binding on Departmental officers. We
also rely on following decisions of Hon ble Tribunals.
2004 (60) RLT 456 (CESTAT-Mum) : India Fibre Bag Mfg Co Vs. CCE, Mumbai

47. 47
2003 (56) RLT 314 (CESTAT Che) : Suvarna Florex Ltd. Vs. CC, Chennai
2005 (56) RLT 331 (CESTAT- Kol) : Bengal Tools Ltd. Vs. CC, Calcutta
The part also stated that the Circulars/Instructions issued by Board are effective
from the date of its publication in the official gazette & the circular which was
issued by department on 07.09.2001 stating that the slitting activity is amounting
to manufacture was effective from this date and the same was withdrawn by the
Board only on 2nd
of March,2005 as this circular was withdrawn by Board on that
date vide Circular No. 811/08/2005 CX dated 02.03.2005 and the Notice issued
by the department is without authority of law and it needs to struck down.
It is a settled legal position that Circulars issued by C.B.E. & C. are binding on
the departmental authorities and they cannot take a contrary stand. It is also
settled law that Change in stand of the Department by amendments/fresh
Circulars - Period prior to change to be governed by the earlier circular which
was in force at the relevant point of time.
The party took the reference of the following case
In the case of Paper Products Limited Vs. CCE [1999 (112) ELT 765 (SC)]
Circulars issued by C.B.E. & C. are binding on the departmental authorities and
they cannot take a contrary stand - Department cannot repudiate a Circular
issued by the Board on the basis that it was inconsistent with a statutory
provision - However assessee can contest the validity or legality of such
Departmental Circulars or Instructions - Department do not have a right to file an
appeal against the correctness or binding nature of a Circular - Department s
actions have to be consistent with the Circulars - Consistency and discipline are
of far greater importance than winning or losing Court proceedings - Section 37B
of the Central Excise Act, 1944. [para 4 & 5]

48. 48
Circulars by Board - Change in stand of the Department by amendments/fresh
Circulars - Period prior to change to be governed by the earlier circular which
was in force at the relevant point of time (para 6)
Appeal by departmental contrary to Board s Circulars - Department do not have a
right to file an appeal against the correctness of binding nature of the Circular
issued by the Board - All actions of the revenue department have to be
consistent with the Circular which was in force at the relevant point of time -
Sections 35, 35B, 35L and 37B of the Central Excise Act, 1944.
Demand contrary to Board s Circulars - Show cause notice or consequential
demand are ab initio bad if they are contrary to the existing Circulars of the Board
- Sections 11A and 37B of the Central Excise Act, 1944. [para 6]
1997 (94) ELT 003 H. M. Bags Manufacturer Vs. CCE
Any action under Section 37B of the Central Excise Act is effective from the date
of its notification or publication, therefore the Board s circular dated 24-9-1992
issued under Section 37B, re-classifying the goods, is effective from 5-11-1992
when the Trade Notice for the same was issued, consequently any demand in
the present case cannot be raised for any date prior to 5-11-1992 and the time
limit as provided under Section 11A is not available to the department. This
conclusion is reinforced by use of the word henceforth by the Board. [para 2]
Departmental Clarification - Circulars issued by Central Board of Excise &
Customs under Section 37B of Central Excise Act effective from the date of their
notification or publication - Any demand for duty cannot be raised for a period
prior to the date of the publication of the such circular/ instructions - Section 11A
of the Central Excise Act, 1944. [para 2]

49. 49
Hon ble CESTAT also in the following decisions had held that the Circulars
issued by C.B.E. & C. are binding on the departmental authorities and they
cannot take a contrary stand and Change in stand of the Department by
amendments/fresh Circulars - Period prior to change to be governed by the
earlier circular which was in force at the relevant point of time.
2004 (063) RLT 0754 : Premier Polysacks (P) Ltd Vs. CCE
2003 (57) RLT 183 : Southern Switch Gear Limited Vs. CCE
2004 (163) ELT 121 : Arvind Chemi Synthetics Pvt. Limited Vs. CCE
2004 (60) RLT 456 : India Fibre Bag Mfg. Company Vs. CCE
The party also took the aid of the Circular which clarifies the slitting amounts to
manufacture was in force from 07.09.2001 to 02.03.2005 and the same is binding
on departmental officers, if any stand taken by the departmental officers and any
demand raised prior to issuance of new circular withdrawing the earlier circular is
not legal and not legal.
Whether can department recovered interest under Section 11AB and impose
penalty under Section 11AC of the Act?
The very base of this notice was whether the activity carried by the party
amounts to manufacture or not. The party was rightly following the instructions of
Board circular and the various decisions along with decision of Hon ble Apex
Court in the case of Tata Iron & steel Co. Limited held that the slitting, re rolling
of coil to make it marketable amounts to manufacture. Thus emphasizing upon
the fact that the payment of penalty imposed on the party should be dropped.
The party also put forward the reference the board dated 07.09.2001 which
states that that the activity of slitting & re-rolling amounts to manufacture was
withdrawn by board only on 02.03.2005. As it is well settled legal position that the

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circular is only prospective and not retrospective considering all these situation
where there is problem of interpretation of statue. It is well settled position that
penalty should not be imposed if Assessee acted on bona fide belief.
The part also provided the reference of decision in Tribunal Larger Bench in the
case of ITEL INDUSTRIES PVT. LTD. Versus Commissioner of Central Excise
Calicut in this case it was held that Penalty - Imposition of - Question of
Interpretation of law*penalty not imposable under Section 11AC of Central Excise
Act, 1944 - No reasons given for imposition of penalty under Rules 173Q and
210 of erstwhile Central Excise Rules, 1944 - Penalty set aside. [para 7(g)] -
2004 (163) E.L.T. 219 (Tri. Bang - LB.)
The following reference were also forwarded by the party wherein In case of
bona fide dispute of law viz. Availability of exemption under Notification etc.,
imposition of penalty is not called for
2002 (146) ELT 118 (CEGAT EZB) : Bharat Wagon & Engineering Co. Limited
V/s. Commissioner of central Excise, Patna
2002 (51) RLT 145 (CEGAT ND) : Swaraj Mazda Limited V/s. Commissioner of
Central Excise, Chandigarh
2002 (49) RLT 349 (CEGAT WZB) : Virlon Textile Mills V/s. Commissioner of
Central Excise, Mumbai
Thus stating that the penalty imposed should be reconsidered
It is also a well settled legal position that penalty under Section 11AC & Interest
under 11AA & 11AB is not imposed when non-payment is not due to
suppression of the facts and that too with a reason of fraud, mis-statement,

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collusion etc. The party insisted that the following decisions be referred wherein it
was held that penalty should not be imposed where there is no malafide intention
to evade duty.
2003 (151) ELT 198 Flex Industries Limited
2003 (54) RLT 496 Kamla Dials & Devices Limited
2002 (52) RLT 943 Aurobindo Pharma Limited
2002 (50) RLT 012 G. S. Enterprises
2002 (50) RLT 292 S. B. Packing Limited
2002 (50) RLT 873 (SC) Nagpur Alloys Castings Limited
2002 (48) RLT 431 Titan Industries Limited
2002 (143) RLT 543 Asha Pavro Electronics Pvt. Limited
2002 (134) ELT 504 Stellar Chemical Labs. Pvt. Limited
2002 (139) ELT 562 Sober Plastics Pvt. Limited
2001 (130) ELT 181 Jamna auto Industries.
2002 (140) ELT 227 Eicher Demm
2001 (45) RLT 895 Sub Zero Ice Cream
2000 (121) ELT 400 Nahar Spinning
2000 (121) ELT 738 Seth Computers
2000 (91) ECR 569 Bhallai Conductors
2000 (117) ELT 320 TTK Pharma.
2001 (134) ELT 679 Apollo Tyres Limited
The reference of the decision in the case of Siemens Limited vs. CCE, Mumbai
VI. In this case it was held that
Penalty - Mandatory Penalty - Cenvat/Modvat - Clearance of inputs as such -
Credit having not been taken wrongly by reason of fraud, wilful misstatement,
collusion or suppression of facts or contravention of any of the provisions of the
Act or Rules made there under with intent to evade payment of duty - Further,

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duty having been paid even before issue of any written demand, provisions of
Rule 57-I(2) of erstwhile Central Excise Rules, 1944 not attracted - Rule 57-I(4)
ibid - Rule 15 of Cenvat Credit Rules, 2004. [para 2(a)]
[2004 (176) E.L.T. 299 (Tri. - Mumbai)]
Thus by presenting these points the party requested that by considering the
above points the charges should be dropped
The party once again emphasized that the said activities are cleared by them are
amounting to manufacture on the basis of the Circular issued by the Board which
were in force in relevant period. The Board had withdrawal the said circular only
on 02.03.2005 and till the time the circular which states that the activity of slitting,
amounts to manufacture was in force. The Notice issued by department when the
circular was in force and as per the Decision of Hon ble Apex Court in the case of
Paper Products Limited & H. M. Bags Manufacturer, the department cannot raise
a demand before the withdrawal of the circular and if any demand is raised, it will
be without any support of law and need to be struck down. We request your
honor to consider our case in the light of the said decisions and drop the
proceedings initiated against us.

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Thus the aggrieved party submitted the following
The activity carried out by party is not an activity of trading but an activity of
manufacture as per the said legal position
No amount of Rs. 2, 00,000/- availed by party as Cenvat Credit should be
recovered from us
No penalty should be imposed on party under Rule (13) (1) of the Cenvat Credit
Rules, 2002 and Rule 15 of Cenvat Credit Rules, 2004.
No Interest should be recovered from party under the provisions of Rule 12 of
Cenvat Credit Rules, 2002 & Rule 14 of Cenvat Credit Rules, 2004 read with
Section 11AB of the Act
Thus insisting that the above allegations be re considered.

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CONCLUSION
1) The accusation about wrong availment of Cenvat credit made on the party
is basically wrong because the according to the definition of manufacture
stated above an activity incidental or ancillary to manufacture of final
product will be treated as activity of manufacture. In this case process of
manufacture again can be seen as a process of de coiling, slitting,
notching etc are intermediate stages of manufacture of cable trays,
ducting etc. and thus no doubt these activities are as per the said
definition,.
2) Thus on further processing the intermediate product by testing the same,
oiling, notching, packing and boxing to make it suitable for export.
Moreover the exported article is the one which came into existence in the
intermediate stage.
3) In addition to this the reason that Cenvat credit is legally claimed is
because the coil which is purchased is an input for manufacture of final
product and thus credit is allowed on it.
4) Moreover whenever any input or service is used in final products which
are cleared for undertaking as the case may be or used in the
intermediate products cleared for export or used in providing output
service which is exported the Cenvat credit in respect of these input or
services so used shall be allowed to be utilized by the manufacturer or
provider of output service towards payment of excise duty on any final
product cleared for home consumption or for export on payment of duty :
or service tax on output service. And where such adjustment is not
possible the manufacturer shall be allowed refund of such amount subject
to such safeguards, conditions and limitations as may be specified by the
central government notification. Thus from this it is very clear that one can
avail credit on inputs and if he clears the intermediate product for export
he can utilize the credit so availed on inputs used for manufacture of such
intermediate products for payment of excise duty on final products cleared

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for home consumption . not only this the definition goes beyond this and it
allows cash refund if such adjustment is not possible
5) Thus justifying that the party was correct in availing Cenvat credit and
hence payment of interest and penalty was out of question as the party
will be liable to pay it only when it had wrongly availed Cenvat credit.

56. 56
Bibliography
1. Indirect Taxes Law & Practice V S Datey
2. Indirect Taxes ----- L P Vakale

57. 57

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