2011 (5) TMI 312 - AT - Central Excise

Cenvat / MODVAT Credit - Notification No.7/2001-CE(NT), dt.1.3.01 and 53/2001-CE(NT) DT.29.6.01. - Manufacture of processed cotton and man made fabrics - Inputs(grey fabrics) procuring from 100% EOUs - Notification No.6/2001 was subsequently amended by Notification No.16/2002, dt.27.4.02, wherein the words or unprocessed fabrics appearing in Para 4 of the notification were omitted, thus entitling the assessee to avail deemed MODVAT Credit in terms of notification as also the actual MODVAT Credit of duty paid on the grey fabrics - Hence, the grey fabrics are not one of the specified inputs in the notification for deemed MODVAT Credit, the same is for various other items/inputs which have gone into the manufacture of grey fabrics which were exempted during the relevant period and were being cleared by the manufacturer without payment of duty - Having observed that expression or unprocessed fabris were appearing in Para 4 of the notification subsequently issued for a limited period, which is not involved in the present appeal, hence the availment of actual duty paid on the grey fabrics in terms of provisions of Rule 3 and simultaneous availment of deemed MODVAT Credit in respect of specified goods mentioned in notification in question cannot be faulted upon - Decided in favour of assessee.

Summary

Issues:
1. Whether the respondent can avail MODVAT Credit of duty paid on grey fabrics and deemed MODVAT Credit simultaneously?
2. Whether the denial of deemed MODVAT Credit in respect of Denim fabrics by the Commissioner(Appeals) is justified?
3. Whether the subsequent availment of CENVAT Credit of actual duty paid on cotton fabrics is permissible under the rules and notifications?

Analysis:

Issue 1:
The case involved the question of whether the respondent could avail MODVAT Credit of duty paid on grey fabrics and deemed MODVAT Credit simultaneously. The Appellate Tribunal analyzed the provisions of Rule 3 of CENVAT Credit Rules and Notifications No.7/2001-CE(NT) and No.53/2001-CE(NT). The Tribunal noted that the purpose of MODVAT Credit is to avoid duty on duty in a manufacturing chain. It was observed that the chain was broken for grey fabrics, which were exempted from duty. Notifications provided deemed credit for inputs used in manufacturing grey fabrics. The Tribunal interpreted the notifications to allow for simultaneous availment of deemed credit and regular CENVAT Credit, unless specifically excluded. The Tribunal referred to the definitions and explanations in the notifications to support this interpretation.

Issue 2:
The Commissioner(Appeals) had denied deemed MODVAT Credit in respect of Denim fabrics based on the timing of credit availed after the final product clearance. The denial was supported by a Tribunal decision in a similar case. However, as the appellant had not utilized the disputed credit and had reversed it, the Commissioner set aside the interest and penalty. The Appellate Tribunal agreed with the Commissioner's decision on this issue, and the appellant did not appeal against it.

Issue 3:
Regarding the subsequent availment of CENVAT Credit on cotton fabrics, the Commissioner(Appeals) allowed the appeal, stating there was no prohibition on simultaneous availment of deemed credit and actual credit. The Revenue challenged this part of the order. The Tribunal examined the relevant notifications and subsequent amendments. It noted that the subsequent notification omitted the restriction on availing deemed credit if actual credit on unprocessed fabrics was taken. The Tribunal found that the appellant was entitled to avail both deemed MODVAT Credit and actual MODVAT Credit on grey fabrics as per the provisions of Rule 3 and the notifications.

In conclusion, the Appellate Tribunal rejected the Revenue's appeal, upholding the decision of the Commissioner(Appeals) regarding the simultaneous availment of MODVAT Credit and deemed MODVAT Credit by the respondent.