2012 (9) TMI 25 - AT - Central Excise

Denial of benefit of Notification No. 67/95-CE in respect of naphtha manufactured in the factory and used in generation of electricity which is further used in the manufacture of exempted goods and used for certain allied facilities such as refinery road lighting, canteen and administrative building etc - assessee contended reversal of proportionate credit in respect of usage for manufacture of exempted goods - retrospective amendment to Rule 6 of the Cenvat Credit Rules by Finance Act, 2010 - Held that - Benefit of the notification is not available in respect of naphtha used for generation of electricity therefore demand confirmed in respect of naphtha used for generation of electricity, used for the said allied facilities. Since assessee has discharged its obligation under Rule 6 of the Cenvat Credit Rules by reversing proportionate credit in respect of usage for manufacture of exempted goods, hence pre-deposit of same is waived subject to deposit of demand confirmed aforesaid

Issues Involved:
Waiver of pre-deposit of duty, interest, and penalty under Notification No. 67/95-CE for naphtha used in the generation of electricity and manufacture of exempted goods.

Comprehensive Analysis:

Issue 1: Waiver of Pre-deposit of Duty
The applicants sought waiver of pre-deposit of duty amounting to Rs. 2,77,57,814/-, interest, and penalty. The dispute arose from the denial of the benefit of Notification No. 67/95-CE in relation to naphtha used for electricity generation and further in the production of exempted goods. The applicants contended that they were reversing credit for inputs used in manufacturing naphtha, which was then used for electricity generation and subsequently in the manufacture of exempted goods. They relied on the retrospective amendment to Rule 6 of the Cenvat Credit Rules by the Finance Act, 2010, allowing the reversal of credit for inputs used in or in relation to the manufacture of exempted goods without separate records. The Revenue argued that the electricity generated from exempted naphtha used in allied facilities did not qualify as being used in or in relation to the final dutiable product. The Revenue also emphasized the obligation to reverse credit for exempted goods under Rule 6, which the applicants allegedly failed to fulfill.

Issue 2: Interpretation of Notification No. 67/95-CE
The Tribunal examined the provisions of Notification No. 67/95-CE, which exempts capital goods and specified inputs if consumed within the factory of production. The notification specifies that the exemption does not apply to inputs used in or in relation to the manufacture of final products exempt from duty, unless certain conditions are met. The Tribunal noted that the benefit of the notification was not available for naphtha used in electricity generation. However, for naphtha used in electricity generation subsequently utilized in the production of exempted goods, the applicants had reversed the credit, thereby fulfilling the obligations under Rule 6 of the Cenvat Credit Rules.

Conclusion
The Tribunal directed the applicants to deposit Rs. 17 lakhs within eight weeks, as the benefit of Notification No. 67/95-CE was not applicable to naphtha used for electricity generation. However, the pre-deposit of the remaining dues was waived as the applicants had discharged their obligations under Rule 6 for naphtha used in the manufacture of exempted goods. Recovery of the remaining dues was stayed pending the appeal process, with a compliance report due on a specified date.

This detailed analysis of the judgment highlights the key legal arguments, interpretations of relevant provisions, and the final decision rendered by the Appellate Tribunal CESTAT, Mumbai.

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