2005 (11) TMI 310 - AT - Central Excise

Summary

Issues:
Claim for refund of Cenvat credit on goods cleared at 'nil' rate of duty under an exemption notification.

Analysis:
The appellants, engaged in the manufacture of cotton yarn and cotton polyester blended yarn, cleared 44,300 Kgs. of blended yarn to NHDC at 'nil' rate of duty under a specific notification. They initially took Cenvat credit on the inputs used but later reversed the credit at the department's request. The appellants then filed a refund claim for the credit amount, contending they were not required to reverse the credit for goods cleared under the notification. The original authority rejected the claim, citing Rule 6(1) of the Cenvat Credit Rules, 2001. The first appellate authority upheld this decision, leading to the current appeal.

The appellants argued that since they only manufactured dutiable cotton polyester blended yarn during the disputed period, the provisions of Rule 6(1) should not apply to deny them input duty credit for goods cleared without payment of duty. They contended that the goods cleared with and without duty payment were identical. On the other hand, the SDR highlighted that the goods cleared without duty payment fell under the category of 'exempted goods' as per the exemption notification issued under Section 5A of the Central Excise Act, making Rule 6(1) applicable to deny Cenvat credit.

Upon examining Rule 6(1) of the Cenvat Credit Rules, 2001, the judge concurred with the SDR's interpretation. The rule stipulates that Cenvat credit shall not be allowed on inputs used in the manufacture of exempted goods, except in specific circumstances. Referring to the Explanation provided, 'exempted goods' included those wholly exempted from excise duty or chargeable at a 'nil' rate. Under the notification invoked by the appellants, the blended yarn supplied to NHDC was indeed chargeable at a 'nil' rate of duty, meeting the conditions specified. Consequently, the goods cleared to NHDC were classified as 'exempted goods,' rendering the appellants ineligible for Cenvat credit on the inputs used for manufacturing and clearing the specified quantity of blended yarn.

In conclusion, the judge affirmed the impugned order, dismissing the appeal and upholding the decision that the appellants were not entitled to claim a refund of the Cenvat credit amount. The operative part of the order was pronounced in open court on 24-11-2005.