2014 (3) TMI 457 - AT - Central Excise

Waiver of pre-deposit - Stay of recovery of Cenvat Credit - Imposition of interest and equal penalty - Held that - Cenvat Credit on inputs used in manufacture of exempted goods is deniable under Rule 6(1) Cenvat Credit Rule. In this case if Dairy Machinery manufactured by the applicants classifiable under Chapter heading 8434 is exempted under the notification No. 06/2006-CE dt. 01.03.2006. Therefore prima Facie the credit of duty paid on inputs is deniable in terms of Rule 6(1) of the Cenvat Credit Rules and the demand confirmed on this ground is sustainable against the applicants - Conditional stay granted.

Summary

Issues:
1. Denial of Cenvat Credit on inputs used in the manufacture of exempted goods.
2. Applicability of Rule 6(1) of the Cenvat Credit Rules.
3. Time bar defense for demand confirmation.

Analysis:
1. The case involved a stay application by M/s Modern Dairies Ltd. seeking waiver of pre-deposit and stay of recovery of Cenvat Credit amount, interest, and penalty imposed by the Commissioner Central Excise Panchkula. The dispute arose as the Revenue denied credit on inputs used to manufacture Dairy Machinery, classified under Chapter heading 8434, which was exempt from Central Excise duty under a specific notification. The Applicant argued that under Cenvat Credit Rule 2004, credit of duty paid on inputs used in the manufacture of exempted capital goods cannot be denied if those capital goods are further used in manufacturing final excisable goods. The Applicant also contended that the extended period limitation was not applicable, and the demand was time-barred.

2. The Revenue, represented by the DR, maintained that since the Dairy Machinery manufactured by the applicants was unconditionally exempt under the specific notification, they were not eligible for Cenvat Credit on inputs used in its manufacture. The Revenue argued that Rule 6(1) of the Cenvat Credit Rules mandates the denial of credit on inputs used in the manufacture of exempted goods. The DR further asserted that the applicants did not have a strong case on merits.

3. The Tribunal, after hearing both sides, held that Cenvat Credit on inputs used in the manufacture of exempted goods is indeed deniable under Rule 6(1) of the Cenvat Credit Rules. The Tribunal found that since the Dairy Machinery manufactured by the applicants was exempted under the specific notification, the credit of duty paid on inputs used in its manufacture was not permissible. Consequently, the demand confirmed on this ground was deemed sustainable. Considering the plea of time bar raised by the Applicant, the Tribunal directed the applicants to deposit a specified amount within a set timeframe and granted a stay against the recovery of the remaining duty, interest, and penalty pending the disposal of the appeal.

In conclusion, the judgment upheld the denial of Cenvat Credit on inputs used in the manufacture of exempted goods, citing Rule 6(1) of the Cenvat Credit Rules. The Tribunal's decision balanced the arguments presented by both parties and provided a directive regarding the deposit and stay against recovery, considering the time bar defense raised by the Applicant.