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2015 (10) TMI 2568 - HC - Central ExciseCENVAT credit on capital goods - Rule 6(4), with effect from 01.3.2003 - Notification No.8/2002-CE dated 1.3.2002 - Rule 57Q of erstwhile Central Excise Rules, 1944 - The first negative that is used in Rule 6(4) is that no CENVAT Credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods. What follows the first part of the Rule 6(4) is the second negative, in the sense that the ineligibility to claim CENVAT Credit stipulated in the first part of Rule 6(4) is negatived or offset by what follows - What is clearly decipherable from the use of the expression final product and the definition of the expression final product is that the Rules do not make a distinction between a main product and a by-product - There is no dispute about the fact that these three products, namely soap stock, acid oil and wax were dutiable even on the date on which the appellant received the capital goods, namely April 2002 to March 2003 - to interpret Rule 4(2)(a) in a manner that will benefit a person, who receives the capital goods on the date, on which, the goods to be manufactured were dutiable, despite the same goods becoming exempted goods on the next day, but to deprive the benefit to a person, who manufactures dutiable goods on the basis of the capital goods received in a particular financial year, would not be a proper interpretation to the Rules - Decided in favor of the assessee.
Issues Involved:
1. Denial of CENVAT credit on capital goods received in a financial year when the final product was exempt from duty at the time of receipt. 2. Justification of denial of CENVAT credit on capital goods when the final product became dutiable within the same financial year. 3. Applicability of case laws settled under Rule 57Q of the erstwhile Central Excise Rules, 1944, to the current case. Detailed Analysis: 1. Denial of CENVAT Credit on Capital Goods Received in a Financial Year When the Final Product Was Exempt from Duty at the Time of Receipt: The appellant, a manufacturer of refined edible oils, imported capital goods during the financial year 2002-03 when the final product was exempt from duty. However, by a notification issued on 01.03.2003, refined edible oil became subject to duty. The appellant claimed CENVAT credit from this date. A show cause notice dated 07.04.2004 alleged that the appellant was not entitled to CENVAT credit on the capital goods as they were exempt from duty at the time of receipt. The Commissioner of Central Excise, in an order-in-original dated 15.02.2005, reversed the input tax credit availed by the appellant. The Tribunal dismissed the appellant's statutory appeal, following precedents set in cases like CCE v. Surya Roshni Ltd. and Grasim Industries v. CCE. 2. Justification of Denial of CENVAT Credit on Capital Goods When the Final Product Became Dutiable Within the Same Financial Year: The appellant argued that the denial of CENVAT credit was unjustified since the final product became dutiable within the same financial year in which the capital goods were received. Rule 4(2) of the CENVAT Credit Rules, 2002, allows credit for capital goods received in a factory at any point of time in a given financial year. Rule 6(4) states that no CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods unless the exemption is based on the value or quantity of clearances made in a financial year. The court noted that the rules do not distinguish between main products and by-products, and the by-products in question (soap stock, acid oil, and wax) were dutiable even when the capital goods were received. The Tribunal's reliance on earlier decisions was deemed incorrect as those cases dealt with Rule 57Q of the old Modvat Rules, which focused on the date of receipt of goods, unlike the current rules. 3. Applicability of Case Laws Settled Under Rule 57Q of the Erstwhile Central Excise Rules, 1944, to the Current Case: The court examined the applicability of case laws like Surya Roshni Ltd., Binani Cements Ltd., and Grasim Industries Ltd., which were based on Rule 57Q of the erstwhile Central Excise Rules, 1944. These rules focused on the date of receipt of goods for availing credit, which differs from the current Rule 4(2)(a) of the CENVAT Credit Rules, 2002, allowing credit at any point within a financial year. The court found that these precedents were not applicable to the present case. The decision in Surya Roshni was not final as it was still under consideration by the Madhya Pradesh High Court. The court also noted that the Tribunal did not consider the interpretation of Rule 6 in its decision. Conclusion: The court concluded that the denial of CENVAT credit based on the negligible quantity of by-products was incorrect. The rules do not differentiate between main products and by-products but refer to final products in general. The appellant was entitled to CENVAT credit as the capital goods were received in the financial year 2002-03, and the final product became dutiable within the same year. The appeal was allowed, and the questions of law were answered in favor of the assessee.
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