A Peculiar Manufacturing Process and Expected Audit Objection
HERE is a peculiar case of a manufacturer of explosives;
The raw materials are not explosives by themselves but they cannot be mixed together in the plant in which they are stored. All the ingredients / raw materials falling in different chapter headings are taken to mining area in a specially designed vehicle called BMD (Bulk Mixing Delivery) vehicle to make the final product i.e. “Explosives” falling under Ch.36 of CETA, 1985. Though the actual manufacturing is taking place at the mining area it appears that the registration to the place where raw materials are stored was granted basing on the Section Notes 3 of Section VI of CETA, 1985. The section notes decided the classification of the final product i.e. “Explosives” in view of the peculiar manufacturing process involved. Hence the unit is granted Central Excise registration as there is manufacturing activity though not in the plant but at the mining area.
CAG has objected to taking credit on the inputs used for manufacturing the explosives as they are not used in the factory. CAG has also taken a contradictory objection that the assessee is clearing raw materials to the mining area and bringing back the leftover raw materials to the plant and discharging the duty on the quantity that is delivered without any permission.
The assessee submits that this is the procedure followed by several assessees in different Commissionerates. Show Cause Notices and appeals will follow.