2004 (9) TMI 434 - AT - Central Excise

Summary

Issues:
1. Entitlement to Cenvat credit on inputs received before a crucial date.
2. Interpretation of Rule 3(1) of the Cenvat Credit Rules and Rule 16(1) of Central Excise Rules, 2002.
3. Applicability of Modvat credit on returned goods.
4. Admissibility of Cenvat credit on inputs lying in stock.
5. Precedents set by Hindalco Industries Co. v. CCE, Allahabad and GM Balco v. CC, Raipur.
6. Consideration of Board's circular on Modvat credit for rejected products.
7. Interpretation of Rule 16 of the Cenvat Credit Rules, 2002.

Analysis:
The appeal addressed the rejection of Cenvat credit by the Commissioner of Central Excise based on the grounds that inputs were received before the crucial date of 1-3-2002. The appellants, engaged in manufacturing copper and copper alloys, utilized Modvat credit for cleared final products returned as defective before the crucial date. The department contended that since the Modvat credit was availed on returned goods treated as inputs received before the crucial date, Cenvat credit was not permissible under Rule 3(1) of the Cenvat Credit Rules and Rule 16(1) of the Central Excise Rules, 2002. The original authority demanded duty, imposed penalties, and interest, leading to the appeal before the Commissioner (Appeals) and subsequently to the Appellate Tribunal.

During the appeal, the appellants argued that Cenvat credit is allowable on inputs in stock as per Rule 3(2). They cited the Hindalco Industries Co. v. CCE, Allahabad case and GM Balco v. CC, Raipur case where similar circumstances led to the allowance of credit. The appellants also referenced a Board circular stating that Modvat credit is admissible on rejected products if new products are made from them. The Tribunal noted the Hindalco Industries Ltd. v. CCE, Allahabad case where it was held that credit on duty paid for final products is available when products undergo melting and re-manufacture. The Tribunal emphasized that Revenue must adhere to the Board's clarifications and cannot take a contradictory stance.

In the final analysis, the Tribunal found that Rule 16 of the Cenvat Credit Rules, 2002 allows Cenvat credit when goods with paid duty are brought for re-making or reconditioning. Considering the legal precedents and clear rules, the Tribunal ruled in favor of the appellants, setting aside the impugned order and allowing the appeal with any consequential relief. The operative part of the order was pronounced in open court on 27-9-04.