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2006 (1) TMI 375 - AT - Central Excise
Issues: Interpretation of Cenvat Credit Rules regarding utilization of MODVAT credit for different final products.
Analysis: The judgment by the Appellate Tribunal CESTAT, New Delhi involved appeals and stay applications that raised a common question regarding the utilization of MODVAT credit for different final products. The appellants, engaged in manufacturing yarn from cotton and polyester, were taking MODVAT credit for inputs and capital goods, treating the MODVAT account as one for both types of yarn. However, the Commissioner held that the credit accruing for inputs of cotton yarn could only be used for duty on cotton yarn, and the same applied to polyester yarn. This led to duty demands based on this interpretation. The appellant-assessee contended that the Commissioner's view of treating the CENVAT account as separate for each final product contradicted the Cenvat Credit Rules and judicial precedents, including a Supreme Court judgment in the case of Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd. The rules specifically allowed the use of credit for payment of duty on any final product, as emphasized in sub-rule 3(3) of the Cenvat Credit Rules, 2002. The Supreme Court had previously stated that the credit was indefeasible and not restricted to specific raw materials or final products. Additionally, the Central Board of Excise and Customs' instructions supported the unrestricted use of credit for any final product manufactured by the appellant. The Tribunal found that the Commissioner's findings were contrary to the rule, Supreme Court judgment, and Board instructions. It emphasized that the MODVAT credit account was indefeasible and could not be fragmented to restrict its use to specific production lines. Allocating credit based on raw materials or final products was not permitted by the rule and was impracticable. Consequently, the appeals were allowed, the impugned order was set aside, and the appellants were granted consequential relief, if any.
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