2006 (12) TMI 47 - AT - Central Excise

Cenvat/Modvat Department contended that the appellant had not maintained separate inventories therefore not eligible for Cenvat Credit on inputs used for manufacture of exempted goods Authority after considering details allow the appeal with unsequential relief.

Summary

Issues:
1. Confirmation of demands and penalty for not paying 8% of the sale price under Rule 6 of Cenvat Credit Rules, 2002.
2. Applicability of Apex Court judgment in Chandrapur Magnet Wires case regarding reversal of Cenvat credit.
3. Interpretation of maintaining separate inventories under Rule 6A of Cenvat Rules.
4. Comparison between the rulings in Chandrapur Magnet Wires case and National Information Technologies Ltd.

Analysis:

1. The appeal challenged the confirmation of demands and penalty for not paying 8% of the sale price under Rule 6 of Cenvat Credit Rules, 2002. The appellants cleared goods without duty payment under a specific notification but reversed the Modvat credit before removal of goods. The issue was whether they were required to pay 8% of the sale price for not maintaining separate inventories. The department argued that the reversal of credit did not exempt them from this requirement.

2. The appellants contended that by reversing the credit before goods removal, they effectively did not avail the Cenvat credit, citing the Chandrapur Magnet Wires case. They argued that the fundamental principle of Cenvat credit remained unchanged despite rule amendments. The Tribunal agreed, stating that on reversal of Cenvat credit, the situation reverted to as if no credit was taken, aligning with the Chandrapur Magnet Wires case.

3. The interpretation of maintaining separate inventories under Rule 6A of Cenvat Rules was crucial. The Tribunal emphasized that the appellants' reversal of credit before goods removal distinguished their case from the National Information Technologies Ltd. ruling. The Tribunal held that the requirement to pay 8% of the exempted goods' price did not apply in this scenario, as the credit reversal nullified the need for such payment.

4. The Tribunal compared the rulings in Chandrapur Magnet Wires and National Information Technologies Ltd. to clarify the applicability of the Apex Court judgment. It concluded that the Chandrapur Magnet Wires case principle persisted despite rule changes. By reversing the credit before goods removal, the appellants were deemed not to have availed the credit, exempting them from the 8% payment requirement. The appeal was allowed based on this analysis, providing consequential relief if applicable.