2007 (6) TMI 363 - AT - Central Excise

Summary

Issues: Interpretation of Rule 19(2) of the Central Excise Rules, 2002 u/s Notification No. 43/2001-C.E. (N.T.); Validity of demanding Cenvat credit repayment; Requirement of prior permission for using non-duty paid input.

Interpretation of Rule 19(2) and Notification No. 43/2001-C.E. (N.T.): The appellants procured duty-free polyester staple fibre under Rule 19(2) read with Notification No. 43/2001-C.E. (N.T.), intending to use it in the manufacture of export goods. Due to commercial reasons, they paid duty and cess on the input in November 2004 under Rule 6 and took Cenvat credit. The department later demanded repayment of the Cenvat credit, alleging non-compliance with the export condition. The lower authorities upheld this demand, including a penalty. The Commissioner (Appeals) found lack of prior permission for using the input for other purposes. The Tribunal held that upon payment of duty and cess, the appellants were entitled to use the input in their normal activities without needing prior permission, as no law mandated it. The demand for repayment of Cenvat credit and penalty was deemed unsustainable in law.

Requirement of Prior Permission: The department alleged that the appellants did not seek prior permission from the Assistant Commissioner to use the non-duty paid input for purposes other than export. However, the Tribunal ruled that once duty and cess were paid on the input under Rule 19(2) and the Notification, the appellants were free to utilize the goods in their regular business operations without the necessity of obtaining prior permission. The demand for repayment of Cenvat credit and imposition of penalty were considered unjustified in this context.

Conclusion: The Tribunal concluded that the demand for repayment of Cenvat credit and penalty imposed on the appellants were not legally sustainable. Upon payment of duty and cess on the input, the appellants were within their rights to utilize the goods in their ordinary business activities without any restrictions. Therefore, the impugned order was set aside, and the appeal was allowed in favor of the appellants.