2006 (5) TMI 394 - AT - Central Excise

Summary

Issues: Denial of Cenvat Credits on inputs due to exemption of final product from duty payment. Interpretation of Rule 6(1) of Cenvat Credit Rules. Applicability of Supreme Court judgments.

Analysis:
1. The Commissioner of Central Excise denied Cenvat Credits amounting to Rs. 1,75,40,771/- to the assessee for inputs in stock as on 9-7-2004, following Rule 6(1) of the Cenvat Credit Rules. The appellant argued that once the benefit of Cenvat Credit was acquired upon receipt of inputs, it should not be denied due to subsequent events like exemption of the final product from duty. Reference was made to Supreme Court judgments and a Rajasthan High Court decision supporting this argument. On the contrary, the Senior Departmental Representative (SDR) cited the Allahabad High Court decision holding that Modvat credit for inputs in stock upon final product exemption was reversible.

2. The Tribunal examined the Apex Court's judgment in the Eicher Motors case, which dealt with a similar scenario under a different rule. While the Eicher Motors case involved unutilized Modvat credit for exempted vehicles, the present case focused on Rule 6(1) of the Cenvat Credit Rules. The rule explicitly states that Cenvat Credit cannot be allowed for inputs used in the manufacture of exempted goods. As the final products in this case were cleared after becoming exempt from duty on 9-7-2004, the focus shifted to the applicability of Rule 6(1). The inputs in stock on that date, including those in semi-finished goods, fell under the category of inputs ineligible for Cenvat Credit. The Tribunal estimated the disallowed credit to be around Rs. 1.1 crore.

3. Despite acknowledging the absence of financial hardships for the appellants, the Tribunal decided not to demand the full disallowed amount as a pre-deposit. Instead, a lenient approach was taken, directing the appellants to pre-deposit Rs. 50,00,000/- within four weeks under Section 35F of the Central Excise Act, 1944. The compliance report was scheduled for 6-7-06. The order was dictated and pronounced in open court, emphasizing the Tribunal's decision on the pre-deposit amount.