2007 (5) TMI 46 - AT - Central Excise

Interest - Department contended that delay in payment of duty reversal of credit involved and accordingly interest were demanded - Demand of interest upheld but restricted to amount paid in cash

Summary

Issues:
1. Interpretation of Notification No. 30/04 regarding exemption conditions.
2. Validity of interest demand on delayed payment of duty.
3. Application of Cenvat Credit Rules and relevant case law.

Analysis:
1. The primary issue in this case revolves around the interpretation of Notification No. 30/04, which provides full exemption subject to certain conditions. The appellant, a manufacturer of various fabrics, started availing this exemption from 22-2-2004. One crucial condition of the notification is that goods cleared should not contain inputs for which duty credit has been taken. The appellant, post-22-7-2004, did not take credit for materials received, indicating compliance with this condition. However, the dispute arises regarding the timing of credit reversal/payment, as the Original Authority demanded interest due to a delay in this process.

2. The contention of the appellant's advocate is based on the legality of credit utilization up to 21-7-2004 and the subsequent reversal/payment made in compliance with the notification. The advocate highlighted Rule 3 of the Cenvat Rules, emphasizing that when a rule or notification mandates exemption based on non-credit availability, it prevails. Furthermore, reference to a Tribunal's decision supported the argument that validly taken credit need not be reversed upon subsequent exemption.

3. The Departmental Representative supported the interest demand citing the delay in reversing credit and paying the duty. The Tribunal analyzed the submissions and concluded that while the appellant eventually complied with the notification's conditions, the delay in payment meant the clearance of finished goods did not strictly adhere to the exemption conditions. The Tribunal upheld the interest demand but restricted it to the cash payment made by the appellant, excluding the credit amount pending adjustment.

In conclusion, the Tribunal partially allowed the appeal, upholding the interest demand on the cash payment while setting aside interest on the credit amount. The decision underscores the importance of timely compliance with exemption conditions and the application of relevant legal provisions and case law in interpreting and implementing such notifications.