2011 (8) TMI 983 - AT - Central Excise

Waiver of pre-deposit - Denial of CENVAT Credit - Credit on CVD - Held that - Items were used along with the equipment mentioned at serial no. 2 as a trap for tobacco beetles. These beetles are said to be a menace to tobacco (raw material for cigarettes) as well as for cigarettes (final product). It is not in dispute that the cigarette manufacturer has to use the beetle trap to drive the beetles away before the raw material is put into the stream of manufacturing activity. This trap is also used in the storage area for the final product. Prima facie it was an accessory to the cigarette-manufacturing plant. The appellant has claimed CENVAT credit in terms of Rule 2(a)(iii) of the CENVAT Credit Rules 2004 whereunder accessories of manufacturing plant are seen included as one of the CENVATable capital goods eligible for CENVAT credit defined under Rule 2 - Stay granted.

Issues:
- Waiver of pre-deposit and stay of recovery in respect of duty, penalty, and redemption fine.
- Denial of CENVAT credit on imported items used as accessories in manufacturing plant.
- Claim of limitation against the demand of duty.

Analysis:
1. Waiver of Pre-deposit and Stay of Recovery:
The appellant sought waiver of pre-deposit and stay of recovery concerning duty, penalty, and redemption fine totaling Rs. 77,681/-, equal amount of penalty, and Rs. 15,000/-, respectively. The demand arose due to the denial of CENVAT credit on specific imported items used as accessories in the manufacturing plant. The Tribunal, after examining the records and arguments from both sides, noted that the items in question were used as traps for tobacco beetles, which are a menace to both raw tobacco material and cigarettes. It was established that the items were accessories to the cigarette-manufacturing plant, making them eligible for CENVAT credit under Rule 2(a)(iii) of the CENVAT Credit Rules, 2004. Considering these facts, the Tribunal found merit in the appellant's case and granted the waiver of pre-deposit and stay of recovery for the adjudged dues.

2. Denial of CENVAT Credit on Imported Items:
The appellant imported specific items, including LASIOTRAP PHEROMONE CAPSULES, LASIOTRAP PHEROMONE CAPSULES (INSECT MONITORING TRAP), and NEW SERRICO PHEROMONE, for which they claimed CENVAT credit amounting to Rs. 77,681/-. However, the credit was denied, leading to the demand of duty. The Tribunal observed that these items were used as traps for tobacco beetles, essential for protecting both the raw material and final product in cigarette manufacturing. As the items were integral accessories to the manufacturing process, the appellant's claim for CENVAT credit under Rule 2(a)(iii) of the CENVAT Credit Rules, 2004, was considered valid. The Tribunal acknowledged the appellant's plea that the demand of duty was time-barred, with the show cause notice issued as late as 7-1-2010. Consequently, the denial of CENVAT credit on the imported items was overturned, and the waiver of pre-deposit and stay of recovery was granted.

3. Claim of Limitation Against Demand of Duty:
In addition to contesting the denial of CENVAT credit, the appellant raised a plea of limitation against the demand of duty. The appellant argued that the relevant show cause notice was issued on 7-1-2010, implying that the demand was time-barred. The Tribunal considered this aspect along with the primary issue of CENVAT credit denial. Ultimately, the Tribunal found merit in the appellant's limitation plea, further supporting the decision to grant the waiver of pre-deposit and stay of recovery for the adjudged dues. The acknowledgment of the limitation plea added another layer of justification to the favorable ruling in favor of the appellant.

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