2011 (3) TMI 1596 - HC - Central Excise

Reversal of MODVAT credit - input, namely, furnace oil, which was utilized in manufacturing of exempted goods - Held that - similar issue decided in the case of Commnr. of Central Excise Versus M/s. Gujarat Narmada Fertilizers Co. Ltd. 2009 (8) TMI 15 - SUPREME COURT , where it was held that Sub-rule (1) covers all inputs, including fuel, whereas sub-rule (2) refers to non-fuel-inputs. Sub-rule (2) covers a situation where common cenvatted inputs are used in or in relation to manufacture of dutiable final product and exempted final product but the fuel- input is excluded from that sub-rule. However, exclusion of fuel-input vis-a-vis non-fuel-input would still fall in sub-rule (1) - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Availability of Cenvat Credit on inputs used in manufacturing exempted goods.
2. Interpretation of Rules 57AD of the Central Excise Rules, 1944.
3. Reversal of Modvat credit on furnace oil used in manufacturing exempted goods.
4. Decision of the Commissioner (Appeals) and challenge before the Tribunal.
5. Tribunal's reliance on the decision of the Larger Bench.
6. Appeal against non-imposition of penalty and non-confirmation of interest.
7. Apex Court's judgment reversing the decision of the Gujarat High Court.
8. Application of sub-rules (1) and (2) of CENVAT scheme to fuel inputs.

Analysis:
1. The appeal raised questions regarding the availability of Cenvat Credit on inputs used in manufacturing exempted goods, contrary to Rules 57AD of the Central Excise Rules, 1944. The Commissioner (Appeals) initially ruled in favor of the Revenue, emphasizing the necessity of a clear nexus between credit availment and duty payment on final products.

2. The Tribunal, however, overturned the Commissioner's decision based on the precedent set by the Larger Bench in a similar case. The Tribunal's order highlighted the entitlement to Modvat credit for fuel used in producing dutiable and exempted goods, following the Tribunal's earlier ruling in a specific case.

3. The Counsel for the appellant pointed out that the Tribunal's reliance on the Larger Bench's decision was challenged and reversed by the Gujarat High Court. Subsequently, the Apex Court reversed the High Court's judgment, reinstating the Revenue's appeal.

4. Upon reviewing the Apex Court's judgment, the High Court concluded that sub-rules (1) and (2) of the CENVAT scheme clearly dictate the disallowance of Cenvat credit for inputs used in manufacturing exempted final products. The judgment emphasized the applicability of these rules to all inputs, including fuel, with the exception of non-fuel inputs.

5. Considering the common issues and the Apex Court's reversal of the Tribunal's relied-upon judgment, the High Court set aside the Tribunal's order and restored the Commissioner (Appeals) decision. The Tax Appeal was disposed of accordingly, aligning with the principles outlined in the CENVAT scheme and the legal interpretations provided by the Apex Court.