2010 (1) TMI 591 - AT - Central Excise

Waiver of pre-deposit - applicants availing benefit of Notification No. 50/2003-C.E - clearances of cement at nil rate of duty - no Cenvat credit is admissible on the inputs or capital goods used exclusively in the manufacture of exempted goods as Rule 6 of the Cenvat Credit Rules, 2004 - applicants took credit on the capital goods used for the manufacture of exempted product - Held that - Department was not furnished with necessary details in relation to the availment of credit on inputs and capital goods by the applicants and definitely there was suppression of facts - direct the applicants to deposit the amount disallowed as credit along with interest - Application is dismissed

Summary

Issues Involved:
1. Admissibility of Cenvat Credit on Capital Goods Used for Exempted Goods
2. Applicability of Rule 6(4) of the Cenvat Credit Rules, 2004
3. Invocation of Extended Period of Limitation
4. Allegations of Suppression of Facts and Mis-statement
5. Financial Hardship and Pre-deposit Requirement

Detailed Analysis:

1. Admissibility of Cenvat Credit on Capital Goods Used for Exempted Goods
The applicants, engaged in manufacturing cement, availed Cenvat credit on capital goods used for producing exempted goods during April 2006 to April 2007. The Commissioner of Central Excise, Chandigarh, disallowed this credit amounting to Rs. 1,12,12,565/-, ordered its recovery with interest, and imposed an equal penalty. The applicants argued that the capital goods would be used for both exempted and dutiable goods over their lifespan, thus justifying their credit claim. However, the tribunal found this contention devoid of substance, emphasizing that Cenvat credit eligibility is determined based on the dutiability of the final product at the time of receipt of the capital goods.

2. Applicability of Rule 6(4) of the Cenvat Credit Rules, 2004
Rule 6(4) prohibits availing Cenvat credit on inputs or capital goods used exclusively for manufacturing exempted goods. The applicants contended that since their capital goods would eventually produce dutiable goods post-exemption, Rule 6(4) should not apply. The tribunal rejected this argument, citing the Larger Bench decision in Spenta International Ltd., which clarified that Cenvat credit eligibility is linked to the dutiability of the final product at the time of receipt of the capital goods.

3. Invocation of Extended Period of Limitation
The applicants claimed that the extended period of limitation should not apply as they had informed the department of their intentions via a letter dated 7th March 2005. However, the tribunal found that the letter did not disclose the availing of credit for exempted goods. The department only became aware of the credit details in February 2008, justifying the invocation of the extended period for issuing the show cause notice.

4. Allegations of Suppression of Facts and Mis-statement
The tribunal noted that the applicants had not provided necessary details regarding the Cenvat credit availed during the relevant period until February 2008. This lack of disclosure amounted to suppression of facts, justifying the department's actions. The tribunal also found that the Commissioner's findings of mis-statement with intent to evade duty were supported by the record, which showed that the department was not informed of the credit details until much later.

5. Financial Hardship and Pre-deposit Requirement
The applicants argued that the pre-deposit requirement would cause undue hardship. However, the tribunal found no substantiated evidence of financial hardship. The tribunal emphasized that claims of financial hardship must be supported by necessary materials, which were lacking in this case. Consequently, the tribunal directed the applicants to deposit the disallowed credit amount along with interest within twelve weeks, while staying the penalty amount until the appeal's disposal.

Conclusion:
The tribunal dismissed the application for stay of the impugned order, directing the applicants to deposit the disallowed credit amount with interest. The penalty amount was stayed until the appeal's final resolution. The case was scheduled for compliance reporting on 17th May 2010.