2008 (3) TMI 526 - AT - Central Excise

Summary

Issues:
1. Waiver of pre-deposit and stay of recovery of duty and penalty.
2. Reversal of Cenvat credit in violation of Rule 3 of the Cenvat Credit Rules.
3. Barred by limitation - demand notice issued.
4. Utilization of Cenvat credit for payment of duty.
5. Availing exemption on finished goods using credit availed inputs.

Analysis:

1. The appellant, a manufacturer of Polyester Viscose Blended Yarn, applied for waiver of pre-deposit and stay of recovery of duty and penalty. The original authority confirmed a demand of Rs. 3,81,319/-, imposed an equal amount of penalty, and demanded interest due on the amount. The appellant opted to avail exemption under Notification No. 30/2004-CE, dated 9-7-2004, but failed to reverse the credit of Rs. 3,81,390/- availed on inputs at various stages of finishing, including finished goods, as required by the Cenvat Credit Rules. Subsequently, the appellant reversed the credit after opting out of the exemption. The Show Cause Notice issued for the demand was based on the alleged violation of Rule 3(4) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) affirmed the original authority's order.

2. The appellant argued that they reversed the Cenvat credit belatedly and that the demand notice issued was barred by limitation. The lower authorities contended that the credit reversal was in violation of Rule 3 of the Cenvat Credit Rules. The Tribunal's decision in a similar case was cited by the Respondent in support of their arguments regarding the utilization of credit availed inputs in the production of finished goods under the exemption notification.

3. The Tribunal analyzed the provisions of Rule 3(4) of the Cenvat Credit Rules, which govern the utilization of Cenvat credit for payment of duty. The proviso to the rule stipulates that credit can only be utilized to the extent available on the last day of the month or quarter. The Tribunal found that the appellant utilized credit earned in March-April 2005 to rectify the non-reversal of credit that should have been done before July 12, 2004. The demand notice did not cite the violation of utilizing credit availed inputs in the production of finished goods as a ground for demand. The Tribunal concluded that the appellant had made a prima facie case against the demand and penalty, as the payment was recognized as fulfilling the alleged requirement.

4. Considering the circumstances and the precedent where a similar demand for belatedly reversed credit was not upheld, the Tribunal granted waiver of the dues as per the impugned order and stayed the recovery until the final disposal of the appeal. The judgment emphasized the correct interpretation of the Cenvat Credit Rules and the specific conditions of the exemption notification regarding the utilization of credit for duty payment on finished goods manufactured using credit availed inputs.