2011 (1) TMI 781 - AT - Central Excise

Penalty - Inputs used by assessee is furnace oil which was used for generating electricity, which, in turn, was used for manufacture of dutiable as well as fully exempted finished products - They still took Cenvat credit on the entire quantity of the fuel inputs while in terms of the clear provisions of Rule 6(1) they should have confined the Cenvat credit only to that quantity of fuel inputs which was required for generating electricity required for use in the manufacture of dutiable finished products and the Department was never informed in this regard - Held that - the respondent are guilty of suppressing the relevant information from the Department and, therefore, the longer limitation period under proviso to Section 11A(1) of Central Excise Rules, 1944 and Rule 57-I(i)(ii) of Central Excise Rules, 1944 has been correctly invoked. For the same reason penalty under Rule 57-I(4) of Central Excise Rules, 1944/ Rule 13 of Cenvat Credit Rules, 2002 readwith Section 11AC of Central Excise Rules, 1944 has also been correctly imposed - Thus, the Revenue s appeal is allowed.

Summary

Issues:
Manufacture of dutiable and exempted finished products using furnace oil for generating electricity and availing Cenvat credit on inputs.

Analysis:

1. Issue of Cenvat Credit Eligibility:
The case involved a dispute regarding the entitlement of the respondent, a manufacturer of Cotton Yarn and Blended Synthetic Staple Fibre Yarn, to Cenvat credit on duty paid for inputs, including furnace oil used for generating electricity. The Department contended that as per the Central Excise Rules, the respondent were not entitled to Cenvat credit on fuel used for generating electricity for manufacturing exempted final products. A show cause notice was issued for recovery of Modvat/Cenvat credit, interest, and penalty. The Joint Commissioner confirmed the demand, but the Commissioner (Appeals) set it aside based on a Tribunal judgment. The Department appealed to the Tribunal challenging this decision.

2. Arguments and Precedents:
The Department argued that the Supreme Court judgment in a similar case established that Cenvat credit must be reversed for fuel used in generating electricity for exempted products. They also highlighted the respondent's failure to declare taking credit for fuel used in manufacturing exempted products. The respondent, citing relevant judgments, defended their position, emphasizing that the use of furnace oil for electricity generation, which was then used in manufacturing, justified availing Cenvat credit.

3. Tribunal Decision:
The Tribunal carefully considered both sides' submissions and reviewed the records. Referring to the Supreme Court judgment, the Tribunal held that Cenvat credit for fuel used in generating electricity for exempted goods was not permissible under the Central Excise Rules. The Tribunal found the respondent guilty of suppressing information from the Department, leading to the invocation of the longer limitation period and imposition of penalties. Consequently, the Tribunal allowed the Revenue's appeal, setting aside the previous decision and restoring the original order-in-original.

In conclusion, the Tribunal's judgment clarified the ineligibility of Cenvat credit for fuel used in generating electricity for manufacturing exempted products, emphasizing compliance with the Central Excise Rules and penalizing non-disclosure of relevant information.