BRAKES INDIA LTD. Vs. CCE

JUDGEMENT

(1.) AFTER examining the records and hearing both sides, we note that the issue involved in this case is already covered in favour of the appellants by our decision in appeal Nos.E/793/05 and E/232/05 [M/s. Brakes India Ltd. v. CCE Chennai III]. Accordingly, after dispensing with predeposit, we take up the appeal for final disposal.

(2.) THE appeal is against the Commissioner's order seeking recovery of CENVAT credit availed by the appellants on automotive parts manufactured and cleared by them for export during the period Oct -Dec' 2004 under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act, along with interest under Section 11AB of the Act, as also imposing a penalty on the party under Rule 15(1) of the CCR 2004. The question whether, on similar facts and circumstances, the appellants were liable to reverse similar credit availed during earlier periods was considered in the aforesaid two appeals and the same was held in favour of the appellants vide Final Order No. 6 39 -640/07 dt. 28.5.2007 passed by this Bench. The relevant; part of the said final order is reproduced below: 6. We have carefully considered the case records and the rival submissions. The department's case is on the basis that the appellants had procured inputs from job workers and exported them as such. As the inputs did not undergo any process of manufacture, the credit availed by the appellants was inadmissible as per cenvat credit rules. Therefore, the same was demanded in the impugned orders. We find that the appellants did not procure inputs and export them as such. They undertook major part of the manufacturing activity of casting pig iron/steel scrap into the automotive parts in their factory as well as the finishing processes. The arguments of the appellants that the processes they undertook prior to the export of the goods after receipt from the job workers amounted to manufacture as envisaged in Clause 2(f) of the Central Excise Act, 1944, carries considerable force. 7. Export goods would be acceptable to the foreign buyer only after the goods are tested for quality. These had to be properly packed, for the purpose of export. Therefore, the goods became marketable only after the impugned inputs were tested and packed. The case law cited by the Ld Consultant had held that inspection of goods was incidental to completion of manufacture. In the above decision, the Tribunal had observed as follows: It is not disputed by the Revenue that the Respondents were carrying out inspection, counting and packing. It is not only in the case of precision instrument alone that inspection is required as submitted by the Revenue. The manufacturers are quality conscious and before the removal of final product, inspection is one of the process which is carried out by the manufacturer. The definition of manufacture in Section 2(f) of the Central Excise Act, includes any process incidental or ancillary to the completion of a manufactured product. The law does not provide that only elaborate packing would be a process ancillary or incidental to the completion of a manufactured product. The Supreme Court in MRF Ltd. case has held that the question is not for what purpose, a particular kind of packing is done but the test is whether a particular packing is done in order to put the goods in the condition in which they are generally sold in the wholesale market at the factory gate. In view of this the Respondents have satisfied the requirement of Rule 57F(2) that the inputs/partially processed inputs on return to factory are put to use in the manufacture of the final product. We also note the following observation of the Tribunal in the case of J.K. Synthetics Ltd. v. Collector of Central Excise, Jaipur , which is relevant in deciding the dispute. Manufacture is defined in Section 2(f) of the Act as including any process incidental or ancillary to the completion of the manufactured product and accordingly packaging the commodity Nylon or Polyester Filament yarn in suitable packages for marketing will be covered in the manufacturing process. Goods used in such process of completion will be goods used in the manufacture of such finished products. Going by the above findings of this Tribunal, automotive parts received by BIL had undergone processes incidental to completion of manufacture before they were exported. We also find that the disputed processes under taken by the appellants are the final steps in a series of processes involved in the manufacture of the impugned goods starting with pig iron/steel scrap in the factory of the manufacturer and continued with the work undertaken by their job workers. It is not proper to see testing and packing in isolation. Considering the processes undertaken by the appellants on the inputs, pig iron, steel scrap and chemicals etc. and those before ultimate export of automotive parts, it cannot be held that the assessee had exported the inputs procured as such. 8. In the case law cited by the Ld. SDR, even after testing and packing, the goods were a kit comprising automotive chain, sprocket and connecting link which did not constitute a new product with any particular function. The kit continued to contain different goods with different functions and not a single product with any particular function. On the peculiar facts of the case, the Tribunal had decided that the activity of testing of these diverse goods and packing them did not change them into a new product. Therefore, the ratio of that case does not support the reasoning adopted in the orders impugned. Appellants exported these goods under bond without payment of duty in terms of procedure under Notification No. 42/01 -CE(N.T.) issued under Rule 19 of the Central Excise Rules, 2002. They were entitled to receive the machined automotive parts without payment of duty for processing them for the exports made, even if it is held that the processes did not amount to manufacture. Therefore, the credit of duty they took is a benefit legitimately due to them, in the view we have taken of the processes undertaken by the assessee. 9. We hold that the impugned goods became fully manufactured goods only in the premises of the appellants before they were exported and that the impugned order demanding cenvat credit availed by the appellants, interest thereon and imposing penalties on them are not sustainable. We also observe that the department had allowed the assessee to export the goods under bond as per procedure laid down in Notification No. 42/01 -CE (N.T.) applicable to manufactured goods. Assessee was allowed to avail credit of duty paid on materials used to pack the export goods. It would appear that the department also had acquiesced in the assessee's practice of treating the packed automotive parts as goods manufactured from machined castings. Accordingly we set aside the impugned orders and allow both the appeals.

(3.) FOLLOWING the above decision, we set aside the impugned order and allow this appeal.