2011 (4) TMI 420 - AT - Central Excise

Allowability of cenvat credit on capital goods - Job work - M/s. Patel Alloys Steel Pvt. Ltd. unit No.II were receiving goods in their parent unit under challan and were carrying out the process of machining on job work basis in terms of Notification No.214/86-CE dated 25.03.86 and they were not paying any duty - Held that - the cenvat credit taken by the assessee on capital goods is admissible who is carrying out the process of job work under Notification No.214/86 - As per the decision of the Apex Court in the case of CCE Vs. Hindustan Sanitaryware & Industries, 2002 -TMI - 46329 - SUPREME COURT OF INDIA wherein in respect of this very notification, this Court has held that so long as duty is paid on the final product, the mere fact that duty was not paid on the intermediate product would not disentitle the manufacturer from the benefit of Notification No.217/86-C.E., dated 2-4-1986 - Decided in favour of assessee.

Summary

Issues:
- Interpretation of Rule 4(6) of Cenvat Credit Rules, 2004 regarding the allowance of credit on capital goods used in the manufacture of exempted goods.
- Clarification on the definition of exempted goods under Notification No.214/86-CE.
- Comparison of exemptions under different rules and notifications.
- Application of case laws to support arguments.
- Analysis of the term "exclusively" in Rule 4(6) for determining admissibility of cenvat credit on capital goods.

Interpretation of Rule 4(6) of Cenvat Credit Rules, 2004:
The appeal involved a dispute over the interpretation of Rule 4(6) of Cenvat Credit Rules, 2004, which prohibits the allowance of credit on capital goods exclusively used in the manufacture of exempted goods. The Revenue contended that the goods in question fell under exempted goods based on Notification No.214/86-CE. However, the assessee argued that the exemption should not be equated with other exemptions where products are entirely duty-exempt. Various case laws were cited to support this argument.

Definition of Exempted Goods and Comparison of Exemptions:
The issue revolved around clarifying the definition of exempted goods under Notification No.214/86-CE and distinguishing it from other exemptions granted under different rules. The assessee maintained that the goods processed under job work basis were not exclusively exempted goods, thereby justifying their claim for cenvat credit on capital goods. The Tribunal differentiated between the exemptions under Rule 4(6) and Notification No.214/86, emphasizing that the assessee was not manufacturing solely exempted goods.

Application of Case Laws and Analysis of "Exclusively" in Rule 4(6):
The judgment extensively analyzed the application of various case laws, including M/s. Bajaj Tempo Ltd., Escort v/s. CCE, and others, to support the conclusion that the assessee was eligible for cenvat credit on capital goods. The interpretation of the term "exclusively" in Rule 4(6) was crucial in determining the admissibility of the credit. The Tribunal emphasized that the capital goods should not have been used at all in the manufacture of dutiable goods for the credit to be denied.

Conclusion:
After considering the facts, legal pronouncements, and the Apex Court's decision in CCE Vs. Hindustan Sanitaryware & Industries, the judgment ruled in favor of the assessee, disallowing the appeal filed by the Revenue. The Tribunal concluded that the cenvat credit on capital goods was admissible to the assessee carrying out job work under Notification No.214/86, highlighting the distinction between the exemptions and emphasizing the term "exclusively" in Rule 4(6) for determining the eligibility for credit.