2004 (1) TMI 616 - AT - Central Excise

Summary

Issues: Disallowance of Modvat credit on inputs after opting out of SSI exemption scheme.

In this case, the appellants, a Small Scale Industrial Unit, opted out of the SSI exemption scheme from 1-4-2000 and began paying duty on their final products. The issue arose regarding the disallowance of Modvat credit amounting to Rs. 92,862/- on inputs used in the manufacture of final products cleared on payment of duty. The main contention was whether the appellants were entitled to claim the input duty credit after opting out of the SSI scheme.

The appellants argued that there was no dispute about the duty-paid nature of the inputs or their utilization in the manufacturing process of final products cleared on payment of duty. They relied on Circular No. 345/2/2000-TRU, which clarified that once an SSI unit starts paying full duty after crossing the exemption limit, CENVAT credit on inputs is admissible. The Circular emphasized the eligibility of SSI units to take CENVAT credit on inputs in stock, finished goods, and inputs in process after the exemption limit is surpassed. The appellants had opted out of the SSI scheme on 1-4-2000 and had taken Modvat credit on inputs in stock on that date, making the credit clearly admissible.

On the other hand, the Departmental Representative referred to para (9) of the same circular, which mainly dealt with credit on capital goods but also mentioned input duty credit. The Commissioner (Appeals) had denied the credit to the appellants by relying on para (9) and distinguishing the appellants' case from the situations mentioned in that paragraph. However, it was noted that the Commissioner had overlooked para (5) of the circular, which clearly allowed CENVAT credit on inputs for SSI units opting out of the scheme and starting to pay full duty. The judgment set aside the impugned order and allowed the appeal, confirming the appellants' entitlement to the Modvat credit on inputs after opting out of the SSI exemption scheme.