2010 (11) TMI 815 - AT - Central Excise

CENVAT credit on capital goods used in the manufacture of exempted goods wrongly availed - Demand duty, interest and penalty Held that - Proviso to Notification No. 30/2004, dated 9-7-2004 there was no bar to the availment of exemption under Notification No. 30/2004 by a manufacturer availing capital goods credit. This apart, Rule 6(4) of the CENVAT Credit Rules, 2004 bars availment of credit on capital goods used exclusively in the manufacture of exempted goods, while in the present case, the duty on cotton yarn is an optional one enabling a manufacturer to clear the goods either without payment of duty or on payment of duty, it cannot be said that capital goods are exclusively used in the manufacture of exempted goods. The assessees paid duty subsequently, namely, during the month of August, 2008 on cotton yarn in terms of Notification No. 29/2004-C.E., dated 9-7-2004 and, therefore, the availment and utilisation of credit for paying duty on capital goods is in accordance with law. order upheld and appeal rejected

Summary

Issues:
Demand of wrongly availed CENVAT credit on capital goods for manufacturing exempted cotton yarn, interpretation of Notification No. 30/2004, applicability of Rule 6(4) of the CENVAT Credit Rules, 2004.

Analysis:
The case involved a demand of Rs. 1,99,749/- for wrongly availed CENVAT credit on capital goods used in the manufacturing of exempted cotton yarn. The adjudicating authority imposed a penalty, which was later set aside by the Commissioner (Appeals), leading to an appeal by the Revenue. The issue revolved around the interpretation of Notification No. 30/2004, dated 9-7-2004, and Rule 6(4) of the CENVAT Credit Rules, 2004.

Upon hearing both sides, it was noted that the proviso to Notification No. 30/2004 specified that the exemption would not apply if credit of duty paid on inputs or capital goods had been taken under the CENVAT Credit Rules, 2002. However, a corrigendum issued on the same date clarified that the exemption would not be available to manufacturers availing input credit only, not those availing capital goods credit. Rule 6(4) of the CENVAT Credit Rules, 2004 prohibits credit on capital goods used exclusively in the manufacture of exempted goods; in this case, since the duty on cotton yarn was optional, capital goods were not exclusively used in the manufacture of exempted goods.

Furthermore, it was highlighted that the assessees paid duty on cotton yarn in accordance with Notification No. 29/2004-C.E., dated 9-7-2004, thereby justifying the availment and utilization of credit for paying duty on capital goods. Consequently, the impugned order was upheld, and the appeal was rejected. The operative portion of the order was pronounced in open court on 22-11-2010.