2004 (6) TMI 547 - AT - Central Excise

Issues Involved:
1. Availability of Cenvat credit on Light Diesel Oil (LDO) and Furnace Oil (FO) used in the manufacture of exempted products.
2. Whether the demand raised in the show cause notice dated 4-7-2002 is time-barred.

Issue-Wise Detailed Analysis:

1. Availability of Cenvat Credit on LDO and FO Used in the Manufacture of Exempted Products:

The appellant, M/s. Paswara Papers Ltd., contended that they availed Cenvat credit on LDO and FO used as fuel in the manufacture of Kraft Liner/Kraft Board, which were exempted from duty under Notification No. 6/2000-CE and subsequent Notification No. 3/2001-CE. The main argument was based on sub-rule (1) and sub-rule (2) of Rule 57AD of the Central Excise Rules, which states that Cenvat credit shall not be allowed on inputs used in the manufacture of exempted goods, except for inputs intended to be used as fuel. The appellant argued that sub-rule (2) created an exception for fuel inputs, allowing full credit even if used in exempted goods. The Commissioner, however, denied the credit on the grounds that the final product was wholly exempt from duty during the relevant period.

The Tribunal analyzed the provisions of Rule 57AD, noting that sub-rule (2) allows credit on inputs used as fuel, provided the manufacturer produces both dutiable and exempted goods. The Tribunal observed that the appellant did not manufacture any dutiable goods during the period they availed the exemption for the first 3500 M.T. of their product. Therefore, the appellant did not meet the conditions of sub-rule (2) and was not eligible for Cenvat credit on LDO and FO during the exemption period.

2. Time-Barred Demand:

The appellant argued that the extended period of limitation under Section 11A of the Central Excise Act was not applicable as they had disclosed all material facts in their Classification Declaration and monthly R.T. 12 Returns. They contended there was no suppression or misstatement of facts, as they had clearly indicated their intention to avail Cenvat credit on fuel used in the manufacture of exempted products.

The Tribunal found merit in the appellant's submission, noting that the Revenue had not contested the appellant's disclosure of material facts. The Tribunal referred to the Supreme Court's decision in Pushpam Pharmaceuticals Co. Ltd. v. C.C.E., which held that suppression must be deliberate to invoke the extended period of limitation. The Tribunal concluded that the extended period could not be invoked, as there was no suppression with intent to evade duty. Consequently, the matter was remanded for recomputation of the demand, excluding the extended period. Additionally, the Tribunal set aside the penalty imposed on the appellant, recognizing that the issue involved the interpretation of Rule 57AD and the appellant had made declarations in good faith.

Conclusion:

The Tribunal held that M/s. Paswara Papers Ltd. was not eligible for Cenvat credit on LDO and FO during the period they availed full exemption under Notification No. 6/2000-CE or 3/2001-CE, as they did not manufacture dutiable goods simultaneously. However, the extended period of limitation was not applicable due to the lack of suppression, and the penalty was set aside. The case was remanded to the Adjudicating Authority for recomputation of the demand.

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