2005 (8) TMI 610 - Commissioner - Central Excise

Summary

Issues:
1. Eligibility for Modvat credit on inputs used in the manufacture of exempted goods.
2. Compliance with Central Excise Rules regarding maintenance of separate inventories/accounts.
3. Applicability of the extended period of limitation.
4. Definition of "inputs" under Rule 57A and Cenvat Credit Rules, 2001.

Issue 1: Eligibility for Modvat credit on inputs used in the manufacture of exempted goods:
The Revenue appealed against the dropping of proceedings initiated under a Show Cause Notice regarding the respondent's claim for exemption under Notification No. 67/95. The appeal contended that after the introduction of Cenvat credit on inputs from April 1, 2000, there was no provision for such credit on inputs used in the manufacture of exempted goods. However, the respondent argued that they had complied with the Central Excise Rules by paying an amount equivalent to 8% of the selling price of exempted goods. The Commissioner held that the respondent, who manufactured intermediate products used in final products, was eligible for Cenvat credit on inputs indirectly participating in the manufacturing process. The Commissioner upheld the lower authority's decision, stating that the respondent's payment of the required amount sufficed, and no interference was warranted.

Issue 2: Compliance with Central Excise Rules regarding maintenance of separate inventories/accounts:
The respondent contended that they had informed the department about not maintaining separate accounts for inputs used in dutiable and exempted products. They argued that they had paid the required amount for exempted goods under Notification No. 10/97 and had not suppressed any facts to evade duty. The respondent claimed that the extended period of limitation was not applicable as the department was aware of their operations. The Commissioner agreed with the respondent's compliance with the rules and found the demand to be time-barred.

Issue 3: Applicability of the extended period of limitation:
The respondent argued that the demand was time-barred as there was no suppression of facts or mis-declaration to evade duty. They maintained that the department was informed about their clearance of goods at a Nil rate of duty and payment for exempted goods. The Commissioner concurred with the respondent's position, ruling that the extended period of limitation did not apply in this case.

Issue 4: Definition of "inputs" under Rule 57A and Cenvat Credit Rules, 2001:
The Commissioner analyzed the definitions of "inputs" under Rule 57A and Cenvat Credit Rules, 2001, emphasizing that inputs used in the manufacture of intermediate products, which were further used in final products, were eligible for Cenvat credit. Referring to a previous case, the Commissioner highlighted that indirect participation of inputs in the manufacturing process was essential for eligibility. The Commissioner upheld the lower authority's decision, stating that the respondent's inability to maintain separate inventories/accounts did not affect their eligibility for Modvat credit.

In conclusion, the Commissioner upheld the impugned order, rejecting the Revenue's appeal based on the respondent's compliance with Central Excise Rules and eligibility for Modvat credit on inputs indirectly involved in the manufacturing process.