2007 (1) TMI 457 - AT - Central Excise

Summary

Issues:
Interpretation of Notification No. 35/2003 regarding deemed Cenvat credit entitlement on finished goods.

Analysis:
The case revolved around the interpretation of Notification No. 35/2003 concerning the entitlement to deemed Cenvat credit on finished goods. The Revenue contested the Commissioner of Central Excise (Appeals) order granting deemed credit to the respondents on inputs contained in shirts lying in stock as of 31-3-2003. The Revenue argued that the assessees were only entitled to credit of Rs. 31,501 under Rule 9A(3)(b)(ii) of the Cenvat Credit Rules, 2002. They claimed that the finished goods, readymade garments under Chapter 62, were not specified under the notification, resulting in an excess credit of Rs. 96,306.

The Notification specified the amount of credit for inputs and finished goods lying in stock. It detailed the calculation methods for different categories of goods, including unprocessed fabrics, yarns, and apparel falling under Chapter 61. The Notification provided for deemed credit based on declared values and rates of duty applicable as of 1-4-2003. The explanation clauses clarified the terms "deemed value," "rate of duty," and "composite mill" for the purposes of the notification.

The Tribunal analyzed the Notification and relevant case law to determine the respondents' eligibility for deemed credit. It was established that while the inputs were specified, the finished goods (apparel falling under Chapter 62) were not specified under the Notification. Therefore, the respondents were deemed ineligible for credit on inputs contained in non-specified finished goods, despite the inputs being specified. The Tribunal distinguished the case law cited by the assessees, emphasizing the specific requirements of the Notification in question.

Consequently, the Tribunal ruled that the respondents were not entitled to credit exceeding Rs. 31,501 and were liable to pay the excess credit of Rs. 96,306. However, as the issue primarily concerned the interpretation of the notification, no penal action was warranted against the respondents. Therefore, the Tribunal concluded that no penalty was applicable to the respondents, and the appeal was partly allowed in favor of the Revenue.