Commissioner of Customs and Central Excise vs Samtel Color Ltd. (No. 2)

Ram Surat Ram Maurya, J.—Heard Shri B.K.S. Raghuvanshi for the appellant and Shri Nishant Mishra for the respondent. This appeal has been filed u/s 35G of the Central Excise Act 1944 (hereinafter referred to as the Act) from the order of the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (hereinafter referred to as the Tribunal) dated April 25, 2005 by which the appeal of the respondent has been allowed and the addition made by the Assistant Commissioner, Central Excise, Division IV, Ghaziabad has been deleted. The appeal has been admitted on the following substantial question of law:

Whether the Appellate Tribunal on the facts and circumstances of the case could decide the goods used as paint on the shop floor can be inputs under the Modvat Credit Rules, 2001/2002?

The facts giving rise to the present appeal are as follows:

M/s. Samtel Color Ltd., Chhapraula, Ghaziabad (the respondent), was the manufacturer of "colour picture tubes" which is an excisable good falling under Heading 40.11 of the Central Excise Tariff Act, 1985. The respondent was availing of the facilities of Cenvat credit under the Cenvat Credit Rules, 2001. During scrutiny of the return for the month of July, 2001 to September, 2001, the Deputy Commissioner, Central Excise, Ghaziabad noticed that the respondent had availed of Cenvat credit on different inputs, viz., cement proder S powder, cement prodor K solution, prodor lac special, mastic HF, PVC roll film 2 MM, cement prodor nitroprima, proscreed HF powder, and paint, etc., involving an amount of Rs. 6,27,099. The Deputy Commissioner, Central Excise, Ghaziabad issued notice dated August 1, 2002 to the respondent that the aforesaid materials were not used for the manufacture of the final product, as such, the assessee was not entitled to the benefit under the Cenvat Credit Rules, 2001 on these materials. It is alleged that the assessee could not submit his reply within the time allowed in the notice as such the Assistant Commissioner, Central Excise, Division IV, Ghaziabad by order dated February 14, 2003 held that the aforesaid materials used by the assessee were the building materials and not required to be used in the manufacturing/processing, directly or indirectly for manufacture of finished goods and as such the Cenvat credit facility availed of on these materials, was inadmissible. On this finding, he disallowed the Cenvat credit on the amount of Rs. 6,27,099 and imposed penalty of Rs. 2 lakhs.

Feeling aggrieved, the respondent filed an appeal from the aforesaid order. The appeal was heard by the Commissioner (Appeals), Customs and Central Excise, Ghaziabad who by the order dated November 14, 2003 held that the reply submitted by the appellant was not sufficient. The disputed materials were the building materials which were required for construction/maintenance of the building and not for the manufacture of the final product, as such the Cenvat credit availed of on it was not admissible. On these findings, the appeal was dismissed.

The respondent filed a second appeal before the Tribunal. The Tribunal by the order dated April 25, 2005 held that the paint and other materials were used on the floor of production hall to make it dust free and fire retardant which was essential for assembling the final product. The definition of "inputs" as given under rule 2(f) of the Cenvat Credit Rules, 2001 includes all goods used for the manufacture of final product or within the factory of production for any other purpose. The paint and building materials used for making the production hall as dust free and fire retardant, is included within the aforesaid definition. Accordingly, the assessee has rightly availed of the Cenvat credit on the aforesaid materials. On these findings, the appeal was allowed and the addition as well as the penalty was deleted.

The counsel for the appellant submitted that "input" means all goods used in relation to the manufacture of the final products. Cement and paint are not used in the manufacture of the final product rather these materials were used for the floor of production hall. As such the respondent was not entitled for the Cenvat credit facility on these items. The counsel for the respondent informed that the appellant had filed Central Excise Appeal No. 181 of 2006 in the matter of the respondent, raising same substantial questions of law. This court by judgment dated September 20, 2012 (Commissioner of Customs and Central Excise v. Samtel Colour Ltd. (No. 1) [2013] 19 GSTR 6 (All)) held that the finding of the Tribunal that the paints used on the floor of the production hall to make it dust free and fire retardant, was used for manufacture of the final products. As such, the Cenvat credit was admissible on it. The judgment of this court dated September 20, 2012 passed in Central Excise Appeal No. 181 of 2006 (Commissioner of Customs and Central Excise v. Samtel Colour Ltd. (No. 1) [2013] 19 GSTR 6 (All)) is fully applicable in this matter.

We have considered the arguments of the parties. The Cenvat Credit Rules, 2001 defined the word "input" as follows:

Input means all goods, except high speed diesel oil and motor spirit commonly known as petrol, used in or in relation to the manufacture on final products whether directly or indirectly and whether contained in 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 for manufacture of final products or for any other purpose, within the factory of production.

The word "manufacture" has been defined u/s 2(f) of the Central Excise Act, 1944 as follows:

''manufacture'' includes any process,--

(i) incidental or ancillary to the completion of a manufactured product;

(ii) which is specified in relation to any goods in the section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or

(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling 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; and the word manufacture shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.

The Supreme Court in Flex Engineering Limited Vs. Commissioner of Central Excise, U.P., held as follows (page 511 of 12 GSTR):

It is trite to state that ''manufacture'' takes place when the raw materials undergo a series of changes and transformation that result in the formation of a commercially distinct commodity having a different name, character and use. It is equally well settled that physical presence of an input in the final finished excisable goods is not a prerequisite for claiming Modvat credit under rule 57A of the Rules. It may very well be indirectly related to manufacture and still be necessary for the completion of the manufacture of the final product. It needs little emphasis that the process of manufacture is complete only when the product is rendered marketable. Thus, manufacture is intrinsically integrated with marketability.

The word "input" has to be examined with the word "manufacture". The respondent claims that dust-free hall was essential for assembling the final product., which has been accepted by the Tribunal. From the aforesaid definition of "manufacture" it is clear that not only the materials used in the final product but incidental and ancillary requirements for the completion of the final product are also falls within the definition of the manufacture. As such the materials used in making the dust-free hall are incidental and ancillary for the completion of the manufacture of the final product. The issue has already been decided by this court in the matter of the assessee by the judgment dated September 20, 2012 in Central Excise Appeal No. 181 of 2006 (Commissioner of Customs and Central Excise v. Samtel Colour Ltd. (No. 1) [2013] 19 GSTR 6 (All)). We see no reason to take a different view. For the aforesaid reasons, the appeal is dismissed.