2009 (1) TMI 515 - AT - Central Excise

Cenvat credit - Art-paper and gum base paper - Cenvat Credit Rules, 2002 have to be read with Chapter 5, pertaining to Cenvat Credit, of CBEC s Excise Manual of Supplementary Instructions, para 3.9 of which clearly states that Cenvat credit is not to be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from duty and, therefore, applying the ratio of Hon ble Supreme Court judgment in the case of Escorts Ltd. v. CCE, Delhi (2004 -TMI - 47028 - SUPREME COURT OF INDIA), the Cenvat credit of duty on art-paper and gum base paper, used in the manufacture of inlay paper and label/stickers, which in turn is used in the manufacture of cassettes, would be available to the Respondents - Decided in favour of assessee.

Summary

Issues:
- Eligibility for Cenvat credit of duty on art-paper and gum base paper used in the manufacture of inlay cards and stickers/labels for cassettes.

Analysis:
The case involved a dispute regarding the eligibility of Cenvat credit for duty paid on art-paper and gum base paper used in the production of inlay cards and stickers/labels, which were further utilized in manufacturing cassettes. The Revenue contended that since the inlay cards and stickers/labels were exempt from duty, Cenvat credit on the inputs should be denied under Rule 6 of the Cenvat Credit Rules, 2002. On the other hand, the Respondent argued that as the inlay cards and stickers/labels were intermediate products used in the cassette manufacturing process, Cenvat credit should be allowed. The Respondent cited a Supreme Court judgment to support their position, emphasizing that credit on inputs used in intermediate products should be available even if the intermediate products are exempt from duty.

Upon careful consideration, the tribunal noted that the inlay cards and stickers/labels were indeed intermediate products intended for use in cassette production, which attracted duty. Although the specific rule analogous to the cited Supreme Court judgment was absent in the Cenvat Credit Rules, the tribunal referred to the CBEC's Excise Manual of Supplementary Instructions, which clarified that Cenvat credit should not be denied even if inputs are used in exempt intermediate products. Relying on this guidance and the principles outlined in the Supreme Court judgment, the tribunal concluded that the Cenvat credit for duty on art-paper and gum base paper used in the production of inlay cards and stickers/labels, subsequently employed in cassette manufacturing, should be available to the Respondents. Consequently, the tribunal dismissed the Revenue's appeal, upholding the order that favored the Respondent.

In summary, the judgment established that Cenvat credit on inputs used in intermediate products, even if those intermediates are exempt from duty, should be allowed when those intermediates are subsequently utilized in the production of taxable final goods. The decision highlighted the importance of interpreting the Cenvat Credit Rules in conjunction with relevant supplementary instructions to ensure the proper application of credit provisions in excise matters.