2012 (12) TMI 437 - SC - Central Excise

Cenvat credit on input LSHS - producing steam and electricity for the manufacture of fertilizer - Held that - In COMMR. OF C. EX., VADODARA Versus GUJARAT STATE FERTILIZERS & CHEM. LTD. 2008 (7) TMI 61 - SUPREME COURT a view has been taken that modvat credit can be taken on LSHS used in the manufacture of fertilizer exempt from duty. Although this decision was rendered in the context of availing modvat credit under the Central Excise Rules, 1944 as they existed prior to the promulgation of the Cenvat Credit Rules, 2002 the principle of law laid down is general and not specific to the Central Excise Rules, 1944. The decision rendered in Commissioner of Central Excise v. Gujarat Narmada Fertilizers Company Limited 2009 (8) TMI 15 - SUPREME COURT has been rendered in the context of the Cenvat Credit Rules, 2002 and is, therefore, more apposite. There is an apparent conflict between GSFCL and Gujarat Narmada since GSFCL does lay down a general principle of law, no option but to refer the issue to a larger Bench to resolve the conflict between GSFCL and Gujarat Narmada. The conflict to be resolved is whether under the Cenvat Credit Rules, 2002 an assessee is entitled to claim cenvat credit on duty paid LSHS utilized as an input in the manufacture of fertilizer exempt from duty.

Summary

Issues:
1. Entitlement to claim cenvat credit on Low Sulphur Heavy Stock (LSHS) used as fuel input for generating steam.
2. Interpretation of Rule 6 of the Cenvat Credit Rules, 2002 regarding cenvat credit on inputs used in the manufacture of exempted goods.
3. Conflict between the decisions in Gujarat Narmada Fertilizers Co. Ltd. v. Commissioner of Central Excise and Gujarat State Fertilizers & Chemicals Ltd. cases.

Analysis:

1. The assessee claimed cenvat credit on LSHS used as fuel input for generating steam, which was then utilized to produce electricity for manufacturing fertilizer exempt from excise duty. The Revenue disputed this claim, leading to show cause notices issued by the Commissioner for recovery of wrongly availed cenvat credit, interest, and penalties.

2. The Tribunal, after a larger Bench decision, held in favor of the assessee, allowing the cenvat credit based on a previous Tribunal decision. However, the Supreme Court, in Commissioner of Central Excise v. Gujarat Narmada Fertilizers Company Limited, set aside the larger Bench decision, emphasizing Rule 6(1) and 6(2) of the Cenvat Credit Rules, 2002. The Court clarified that cenvat credit is not allowable on inputs used in the manufacture of exempted final products, including fuel.

3. The conflicting decisions in Gujarat Narmada and Gujarat State Fertilizers & Chemicals Ltd. cases regarding the entitlement to claim cenvat credit on LSHS used as an input for manufacturing exempted goods led to the Supreme Court referring the issue to a larger Bench for resolution. The conflict arose due to differing interpretations of the Cenvat Credit Rules, 2002, specifically on whether cenvat credit is permissible on duty paid LSHS used in manufacturing exempted goods.

This detailed analysis outlines the legal dispute surrounding the entitlement to cenvat credit on LSHS, the interpretation of relevant rules, and the need for resolving conflicting decisions through a larger Bench to provide clarity on the issue.