2011 (3) TMI 1083 - AT - Central Excise

Manufacturing dutiable as well as exempted goods - non maintaining of separate accounts - Revenue entertained a view that they are required to pay an amount of 8% of the value of the exempted goods at the time of clearance - appellant submitted that inasmuch as the Modvat Credit involved in respect of input utilized in the manufacture of the final product stand reversed by them - Held that - As decided in CCE Vs. M/s Ashima Dyecot Ltd. 2008 (9) TMI 87 - HIGH COURT GUJARAT that if the credit stand reversed, the same amounts as if no credit stand availed on the input, in which case the provisions of Rule 6(3)(b) would not be attracted. Thus for the purpose of stay, the appellant has been able to make out prima facie case in their favour. We, accordingly, dispense with the condition of pre-deposit of duty and penalty and allow the stay petition unconditionally.

Summary

Issues:
1. Non-compliance with stay order leading to dismissal of appeal.
2. Requirement to pay 8% of value of exempted goods under Rule 6(3)(b) of Cenvat Credit Rules, 2002.
3. Interpretation of Rule 6(3)(b) in the context of reversed Modvat Credit.
4. Application of High Court and Supreme Court decisions on reversed credit in similar cases.
5. Granting of stay without pre-deposit and remand for decision on merit.

Analysis:
The judgment by the Appellate Tribunal CESTAT, Ahmedabad, dealt with the issue of non-compliance with a stay order resulting in the dismissal of an appeal. The appellate authority had dismissed the appeal for failing to comply with the stay order directing the deposit of a specified amount. The appellant, engaged in manufacturing dutiable and exempted goods without separate accounts, faced demands and penalties from the Revenue under Rule 6(3)(b) of Cenvat Credit Rules, 2002. The Commissioner (Appeals) had based the dismissal on a Mumbai High Court decision, disregarding the appellant's argument regarding the reversal of Modvat Credit related to inputs used in final product manufacture.

In a crucial turn, the Tribunal referenced a Gujarat High Court case (CCE Vs. M/s Ashima Dyecot Ltd.) upholding that when credits are reversed, it is as if no credit was availed, thereby not triggering Rule 6(3)(b). This High Court decision was further supported by the Supreme Court, strengthening the appellant's case for a stay without pre-deposit. Consequently, the Tribunal granted the stay petition unconditionally, setting aside the Commissioner (Appeals)'s order and remanding the matter for a merit-based decision without requiring any pre-deposit.

The judgment's significance lies in its clarification on the applicability of Rule 6(3)(b) concerning reversed Modvat Credit, aligning with established High Court and Supreme Court precedents. By dispensing with the pre-deposit condition and remanding for a merit-based review, the Tribunal ensured a fair consideration of the appellant's case. This decision underscores the importance of legal precedents and interpretations in tax matters, providing clarity for future cases involving similar issues of credit reversal and duty payment obligations.