2007 (2) TMI 413 - AT - Central Excise

Summary

Issues involved: Determination of admissibility of Cenvat credit u/s Rule 3(6)(a) of Cenvat Credit Rules, 2002 for inputs supplied by a 100% EOU, and applicability of Rule 3(4) and Rule 3(5) regarding payment and eligibility of Cenvat credit.

Summary:
The appeal before the Appellate Tribunal CESTAT, Mumbai arose from an order of the Commissioner of Central Excise, Raigad directing the assessee to repay excess Cenvat credit of Rs. 7,69,41,291/- along with interest and penalty. The dispute centered around the use of iron ore pellets by the assessee, supplied by a 100% EOU, for manufacturing pig iron/hot metal. The department contended that credit was admissible as per Rule 3(6)(a) of the Cenvat Credit Rules, 2002. Upon hearing both sides, it was noted that the inputs were cleared by the manufacturer under Rule 3(4) and the amount paid was eligible as Cenvat credit under Rule 3(5). The appellants argued that they were entitled to credit of the entire amount paid by the manufacturer at the time of clearance of inputs. The Tribunal distinguished a previous decision and held that the credit of the amount involved was admissible to the appellants, setting aside the impugned order and allowing the appeal.

In the present case, the main issue revolved around the interpretation and application of Rule 3(6)(a) of the Cenvat Credit Rules, 2002 concerning the eligibility of Cenvat credit for inputs supplied by a 100% EOU. The department's contention was based on the specific formula provided in the rule for calculating credit based on ad valorem rates of duties.

The Tribunal analyzed Rule 3(4) and Rule 3(5) which govern the payment and eligibility of Cenvat credit when inputs are removed from the factory. It was observed that the manufacturer had paid the amount under Rule 3(4) and such payment was deemed eligible as Cenvat credit under Rule 3(5, allowing the recipient to avail the credit.

The appellants successfully argued that Rule 3(6) did not restrict the extent of credit that could be availed under Rule 3(5, and thus they were entitled to take credit of the entire amount paid by the manufacturer at the time of clearance of inputs. The Tribunal distinguished a previous decision where the input supplier and receiver were parties, unlike in the present case where the supplier was not involved, leading to a different outcome.

Ultimately, the Tribunal relied on established legal principles to rule in favor of the appellants, who had merged with the manufacturer, holding that the credit of the amount involved was admissible and setting aside the Commissioner's order.