2011 (2) TMI 1087 - AT - Central Excise

Cenvat credit denied - Manufacture - Superintendent directed the appellants to reverse the credit on the ground that credit on wires drawn from the wire rods was in contravention of Rule 3(1) of CENVAT Credit Rules, 2002 as it allowed credit only of duty of excise leviable under the Act - Held that - Amendment in Rule 16 is aimed at facilitating wire drawing units , which had paid a sum equal to the duty leviable on drawn wire after availing the credit of duty paid on inputs for the period. wire drawing units, which had paid a sum equal to duty leviable on drawn wire, would be eligible to avail the credit of duty paid on inputs and utilize the same for payment of duty on drawn wire for the period of amendment. The sum paid by the wire drawing unit in such cases will be treated as duty and shall be allowed as credit to the buyer of drawn wire, in terms of the amendment. This amendment would not create any additional liability on any wire drawing unit which did not pay duty on drawn wire during the period of amendment - demands are not sustainable in the light of said Circular No. 831/8/2006-CX dated 26th July, 2006 - appeal filed by the Revenue is rejected.

Summary

Issues:
- Availing CENVAT credit on inputs
- Interpretation of Circulars and Amendments
- Applicability of Rule 3(1) of CENVAT Credit Rules, 2002
- Retrospective amendment of Rule 16 of the Central Excise Rules, 1944
- Impact of Circular No. 831/8/2006-CX

Analysis:

The case involves assessees engaged in manufacturing precision springs and press pans availing CENVAT credit on inputs, particularly spring steel wire. A Circular dated 16th February 2001 clarified that drawing wire from wire rods amounts to manufacture. However, this Circular was withdrawn on 29th May 2003 following a decision by the apex court. The Superintendent directed the appellants to reverse credit availed on wires drawn from 29th May 2003 onwards, citing a contravention of Rule 3(1) of CENVAT Credit Rules, 2002. Subsequently, show-cause notices were issued, demands confirmed, and appeals filed. The Commissioner (Appeals) in one appeal allowed the claim of the assessee, leading to further appeals by both parties.

The advocate for the appellants argued that a retrospective amendment to Rule 16 of the Central Excise Rules, 1944, through the Taxations Laws (Amendment) Act, 2006, expanded the definition of 'assessee' to include wire drawing units, allowing CENVAT credit on duty paid for drawn wires. This amendment was deemed to render the demands unsustainable.

Upon examination, the Tribunal considered Circular No. 831/8/2006-CX dated 26th July 2006. Paragraphs 4.2 and 4.4 of the Circular were highlighted, emphasizing the Supreme Court's stance that wire drawing did not constitute 'manufacture.' The Circular detailed the retrospective amendment in Rule 16 aimed at regularizing credit taken at various stages for wire drawing units. It clarified that wire drawing units paying duty on drawn wire were eligible to avail credit on inputs and utilize it for duty payment on drawn wire during the amendment period. The Tribunal, based on the Circular's provisions, concluded that the demands were unsustainable, setting aside the impugned orders. Consequently, the appeals by the appellants were allowed, and the appeal by the Revenue was rejected.