2011 (3) TMI 540 - AT - Central Excise

Modvat credit - Rule 17 of Cenvat Credit Rules - 100% EOU - The issue involved is as to whether the appellant is entitled to avail the modvat credit in respect of the inputs used in the manufacture of the final product which stands exported without payment of duty - Having held that such clearance cannot be equated with exempted goods or goods attracting nil rate of duty, the Commissioner (Appeals) was not justified in proceeding ahead to apply Rule 17 of Cenvat Credit Rules - Assessee submits that the said rule is applicable in respect of goods cleared by 100% EOU in DTA to pay duty out of PLA - Hence, set aside the impugned order and allow the appeal with consequential relief to the appellant.

Summary

Issues:
1. Admissibility of modvat credit on inputs used in the manufacture of final product by a unit converted from DTA to 100% EOU.
2. Applicability of Rule 17 of Cenvat Credit Rules to a 100% EOU regarding payment of duty.

Analysis:

Issue 1: Admissibility of modvat credit on inputs used in the manufacture of final product:
The case involved a unit that transitioned from a DTA unit to a 100% EOU. The dispute arose over the admissibility of modvat credit on inputs sent to a job worker before the conversion. The Revenue contended that since the goods were not received back by the appellant after becoming a 100% EOU, the credit availed on those inputs was inadmissible. The Joint Commissioner held that the duty liability arose as the processed goods were not received back before the conversion. However, the Commissioner (Appeals) ruled in favor of the appellant, stating that goods cleared by a 100% EOU were not exempted or chargeable to nil rate of duty, thus allowing the modvat credit. The Tribunal agreed with the appellant, emphasizing that the issue was solely about the availability of modvat credit for exported final products, and the Commissioner had exceeded the scope by invoking Rule 17 of Cenvat Credit Rules.

Issue 2: Applicability of Rule 17 of Cenvat Credit Rules to a 100% EOU:
The Commissioner (Appeals) had upheld the demand for duty based on Rule 17, which requires a 100% EOU to pay duty through account current (PLA) and not utilize cenvat credit. The appellant argued that Rule 17 was not applicable to their case as it pertained to goods cleared in the DTA. The Tribunal concurred with the appellant, ruling that Rule 17 was irrelevant to the issue of modvat credit admissibility. The Tribunal set aside the impugned order, allowing the appeal and providing consequential relief to the appellant.

In conclusion, the Tribunal held that the appellant was entitled to avail modvat credit on inputs used in the manufacture of final products cleared for export as a 100% EOU. The Tribunal also clarified that Rule 17 of Cenvat Credit Rules, pertaining to payment of duty by a 100% EOU through account current, was not applicable in this context.