2011 (2) TMI 1154 - AT - Central Excise

Cenvat Credit denied - the inputs and the goods in respect of which the credit was sought to be availed were not lying in stock of the assessee as they were already removed from their factory premises and were lying in the port area - Held that - Considering the undisputed facts, the goods were removed to the port area on issuance of the invoices disclosing the buyers name. Admittedly, they were not subjected to duty liability at the time of clearance of goods from the factory. Obviously therefore, the goods were not final products which were subjected to payment of duty. Hence, the inputs in such goods were not entitled to avail the credit in relation to the duty paid thereon and hence they were rightly excluded from being considered as the goods lying in stock - order of the adjudicating authority disallowing the Cenvat credit and confirming the demand of interest is hereby restored and confirmed - Appeal is disposed of

Summary

Issues Involved:
1. Disallowance of Cenvat credit.
2. Demand for interest.
3. Imposition of penalty.
4. Interpretation of Rule 9A of the Cenvat Credit Rules and relevant notifications.
5. Eligibility of goods stored outside factory premises for Cenvat credit.

Detailed Analysis:

Disallowance of Cenvat Credit:
The appeals arise from a common order passed by the Commissioner (Appeals), Chandigarh, which set aside the orders-in-original disallowing the Cenvat credit and confirming the demand for interest and imposition of penalty. The Joint Commissioner disallowed the Cenvat credit on the grounds that the inputs and goods for which credit was sought were not lying in stock at the factory premises but were stored at the port area. The Commissioner (Appeals) held that the credit was available irrespective of the storage location of the goods, whether in the factory premises, godown, or other premises.

Demand for Interest:
The Joint Commissioner had also demanded interest on the disallowed Cenvat credit amounts. The Commissioner (Appeals) set aside this demand, but the department appealed against this decision. The Tribunal analyzed whether the goods stored at the port area could be considered as "goods lying in stock with the manufacturer" and concluded that the credit could only be availed if the goods were to be used in the manufacture of dutiable final products.

Imposition of Penalty:
The Joint Commissioner imposed penalties equal to the disallowed Cenvat credit amounts. The Commissioner (Appeals) set aside these penalties, which was upheld by the Tribunal. The Tribunal reasoned that the matter involved the interpretation of legal provisions and notifications, making the imposition of penalties inappropriate.

Interpretation of Rule 9A and Relevant Notifications:
Rule 9A was introduced to allow manufacturers to avail credit for duty paid on inputs lying in stock as of 1-4-2003, as garments were brought under excise duty from that date. The Tribunal noted that the credit could only be availed for inputs utilized in dutiable final products. The Tribunal emphasized that the expression "lying in stock" in Rule 9A and the notifications should be understood in the context of the entire Cenvat credit scheme, which aims to facilitate credit for duty paid on inputs used in dutiable final products.

Eligibility of Goods Stored Outside Factory Premises for Cenvat Credit:
The Tribunal referred to circulars clarifying that goods stored at premises other than the registered factory premises could still be considered for credit if declared. However, the Tribunal concluded that merely having control over the goods was insufficient; the goods must be utilized in the manufacture of dutiable final products to qualify for credit. The Tribunal found that the goods stored at the port area, cleared from the factory premises under buyers' orders, did not qualify as "goods lying in stock" for Cenvat credit purposes.

Conclusion:
The Tribunal partially allowed the appeal, restoring the Joint Commissioner's order disallowing the Cenvat credit and confirming the demand for interest. The order setting aside the penalties was upheld, as the issue involved interpretation of legal provisions. The appeals were disposed of accordingly.