2006 (9) TMI 59 - AT - Central Excise

Cenvat/Modvat Revenue alleged that appellant is not entitled to take Cenvat Credit on the input (molasses) at all as extra final product(neutral alcohol) carries nil rate of duty Authority after considering the detail allow the appeal of assessee and dismissed the revenue appeal

Summary

Issues:
1. Admissibility of Cenvat credit on molasses used in the manufacture of Extra Neutral Alcohol and Denatured Ethyl Alcohol.
2. Interpretation of Rule 57AD(12) of the Central Excise Rules, 1944/Rules 6(3) of the Cenvat Credit Rules, 2001 regarding common inputs for dutiable and exempted goods.
3. Requirement of separate accounts for inputs when manufacturing both dutiable and exempted goods.

Analysis:
1. The appeal involved a dispute regarding the admissibility of Cenvat credit on molasses used in manufacturing Extra Neutral Alcohol and Denatured Ethyl Alcohol. The Revenue contended that since Extra Neutral Alcohol carries nil duty, Cenvat credit on molasses should not be allowed. The Commissioner's order confirmed the demand for irregularly taken credit on molasses for Extra Neutral Alcohol, imposing a penalty and interest. The Tribunal considered the final products, common input, and the exempted nature of Denatured Ethyl Alcohol. It was established that molasses was a common input for both products, and the assessee complied with the rules by reversing a portion of the sale value of exempted products. The Tribunal set aside the Commissioner's order, allowing the appeal of the assessee and dismissing the Revenue's appeal.

2. The Commissioner's interpretation of Rule 57AD(12) and Cenvat Credit Rules was scrutinized by the Tribunal. The Commissioner emphasized the simultaneous emergence of final products using common inputs for allowing Cenvat credit. However, the Tribunal focused on the essential aspects: identification of final products, presence of common inputs, and differentiation between dutiable and exempted goods. It was clarified that maintaining separate accounts for inputs is crucial when manufacturing both types of goods. In this case, since the assessee used molasses as a common input for Extra Neutral Alcohol and Denatured Ethyl Alcohol, the Tribunal ruled in favor of the assessee, emphasizing compliance with the rules over technical manufacturing processes.

3. The Tribunal's decision highlighted the importance of maintaining separate accounts for inputs when producing dutiable and exempted goods. The assessee's adherence to the requirement of reversing a portion of the sale value of exempted products demonstrated compliance with the rules. By focusing on the nature of final products, common inputs, and the need for separate accounts, the Tribunal concluded that the denial of Cenvat credit on molasses by the Revenue was unwarranted. The Tribunal's ruling favored the assessee, emphasizing the significance of following regulatory requirements to determine the admissibility of credits on common inputs used in manufacturing processes.

This detailed analysis of the judgment provides insights into the legal intricacies surrounding the admissibility of Cenvat credit and the interpretation of rules governing the use of common inputs in the manufacturing of dutiable and exempted goods.