2011 (1) TMI 3 - HC - Central Excise

Job Work - Cenvat - Exemption notification no. 214/86 - Held that - While there is no dispute that under Rule 6(1) of the Rules, Cenvat Credit cannot be availed in respect of inputs used in manufacture of exempted goods, the same has to be read with the notification - availing of Cenvat Credit is permissible by job worker, subject to the final manufacturer paying the duty - Decision of apex court in the matter of CCE v. Hindustan Sanitaryware and Industries (2002 -TMI - 46329 - SUPREME COURT), CCE v. Ballarpur Industries Ltd. (2007 -TMI - 1670 - SUPREME COURT) and Escorts v. CCE (2004 -TMI - 47028 - SUPREME COURT) followed

Summary

Issues:
1. Appeal under Section 35G of the Central Excise Act, 1944 against the order of the Customs, Excise and Service Tax Appellate Tribunal proposing substantial questions of law.
2. Permissibility of Cenvat Credit on inputs used in the manufacture of exempted goods under Rule 6 of the Cenvat Credit Rules 2004.
3. Interpretation of notification No.214/86-CE dated 25.03.86 regarding exemption availability subject to conditions.
4. Adjudication on the validity of Cenvat Credit availed by the assessee.
5. Application of Rule 6(1) of the Cenvat Credit Rules in relation to exempted goods manufacturing.
6. Legal principles governing Cenvat Credit availability in the manufacture of final products.

Analysis:
1. The appeal was filed against the order of the Tribunal to raise substantial questions of law regarding goods cleared without payment of duty under notification No.214/86-CE and the applicability of Rule 6 of the Cenvat Credit Rules 2004. The assessee availed Cenvat Credit for inputs used in manufacturing on a job work basis. The department objected, citing Rule 6(1) of the Rules, which prohibits Cenvat Credit on inputs for exempted goods. The assessee argued exemption availability under the notification subject to conditions of use or payment of excise duty by the supplier. The adjudicating authority upheld the assessee's position, referring to previous judgments and set aside the show cause notice.

2. The Commissioner (Appeals) and the Tribunal affirmed the adjudicating authority's view. The appellant contended that Cenvat Credit was wrongly availed in violation of Rule 6(1), citing the Supreme Court judgment in CCE v. Ballarpur Industries Ltd. The court rejected this argument, emphasizing that Cenvat Credit can be availed if the final manufacturer pays the duty, as per the notification. The court referred to the purpose of the notification and Rules to prevent duty cascading, allowing credit even if duty is not paid on intermediate products, provided duty is paid on the final product.

3. The court distinguished the Ballarpur Industries Ltd. judgment from the present case, where the issue revolved around the effect of the 25.3.1986 notification. No substantial question of law was found to arise, leading to the dismissal of the appeal. The judgment clarified the entitlement to MODVAT credit on duties paid for inputs used in manufacturing parts for tractors on which duty is paid. Parts sold in the market or used for non-duty paid tractors would not be eligible for the notification benefits.