2011 (3) TMI 1435 - AT - Central Excise

Waiver of pre-deposit - Cenvat credit - credit disallowed on the capital goods on the ground that the capital goods in question were exclusively used for manufacture of non-dutiable intermediate product and have no relation with the manufacture of the final product Held that - order does not disclose that the department was totally unaware of the fact that the appellants were availing the credit in relation to the duty paid on the capital goods even though same were not utilized for the manufacture of the final product and that the same were utilised in relation to the exempted intermediate product, demand prior to 17-2-2008 is prima facie time barred, appellants to deposit the amount in relation to the credit sought to be availed on or after 17-2-2008 till October 2008.

Issues:
1. Disallowance of cenvat credit on capital goods used for manufacturing non-dutiable intermediate product.
2. Interpretation of Rule 3 of Cenvat Credit Rules.
3. Applicability of circular on denial of cenvat credit.
4. Invocation of extended period of limitation.

Issue 1: Disallowance of Cenvat Credit on Capital Goods:
The appeal arose from an order disallowing cenvat credit of Rs. 1,77,10,796/- on capital goods used for manufacturing a non-dutiable intermediate product. The appellant argued that Circular No. 665/56/2002-CX clarified that credit on duty paid capital goods used in manufacturing dutiable goods cannot be denied due to exemption of the intermediate product from duty. However, the department contended that the law applied did not warrant waiving the disallowed amount.

Issue 2: Interpretation of Rule 3 of Cenvat Credit Rules:
Rule 3 of Cenvat Credit Rules allows manufacturers to avail credit on duty paid capital goods used in the manufacture of the final product. The dispute arose as the capital goods were used for manufacturing spirit, with 98% sold and 2% converted into denatured spirit. The department argued that since no machinery was required for denatured spirit, the capital goods were not directly related to it. The tribunal held that the capital goods were used exclusively for spirit, not denatured spirit, thus denying the credit.

Issue 3: Applicability of Circular on Denial of Cenvat Credit:
The circular clarified that cenvat credit should not be denied on capital goods used for manufacturing exempt intermediate products if they are used in the overall manufacturing process of dutiable goods. The tribunal noted that the circular supported the department's view that the capital goods were not directly related to the final product, denatured spirit, as they were used for manufacturing spirit.

Issue 4: Invocation of Extended Period of Limitation:
The appellant contested the invocation of the extended limitation period, arguing that the department had knowledge of the manufacturing process and no irregularities in record submission. The tribunal found the invocation of the extended period unjustified, ruling that the demand prior to a certain date was time-barred. The appellant was directed to deposit the amount sought after the specified date, waiving the rest of the demand and penalty amount.

In conclusion, the tribunal upheld the disallowance of cenvat credit on capital goods used for manufacturing a non-dutiable intermediate product, citing Rule 3 of Cenvat Credit Rules and the circular's applicability. The invocation of the extended limitation period was deemed unjustified, leading to a partial waiver of the demanded amount.

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