2015 (2) TMI 653 - AT - Central Excise

CENVAT Credit - duty on the PSF and VSF which had been procured duty free under Rule 19 (2) in cash - Held that - First point as to whether the duty on subject quantity of PSF & VSF procured duty free which could not be used for manufacture of the finished goods exported out of India, could be paid through Cenvat Credit is not stands decided by the Tribunal judgment in the case of Ginger Clothing Pvt. Ltd. Vs. CCE, Thane reported in 2014 (2) TMI 868 - CESTAT MUMBAI in favour of the appellant and similarly the second issue as to whether cenvat credit of the duty paid on the above mentioned PSF & VSF would be admissible also stands decided on appellants favour by the Tribunal judgement in the case of Karpagambal Mills Ltd. Vs. CCE, Tirunelveli reported in 2007 (6) TMI 363 - CESTAT, CHENNAI . In view of this, the impugned order is not sustainable. - Decided in favour of assessee.

Summary

Issues:
1. Duty payment on PSF & VSF procured duty-free under Rule 19(2) of Central Excise Rules, 2002.
2. Admissibility of cenvat credit for duty paid on PSF & VSF.

Analysis:

Issue 1:
The appellant, a manufacturer of blended spun yarn, procured polyester staple fibre (PSF) and viscose staple fibre (VSF) duty-free under Rule 19(2) for manufacturing yarn for export. However, due to circumstances, they used a portion of the duty-free PSF & VSF to produce yarn for domestic sales, on which they paid central excise duty and interest. The Additional Commissioner confirmed a duty demand against the appellant, disallowing cenvat credit and imposing penalties. On appeal, the Commissioner upheld the decision. The appellant argued that a Tribunal judgment favored their position, allowing duty payment on PSF & VSF through cenvat credit. The Department contended that the duty payable on duty-free goods is not the same as duty and should be paid in cash, not through cenvat credit.

Issue 2:
The Tribunal analyzed the facts, noting that the appellant used duty-free PSF & VSF for producing yarn sold domestically, making it ineligible for duty exemption. The main dispute centered on whether the excise duty on this material could be paid using cenvat credit and if the cenvat credit for this duty would be admissible. The Tribunal referred to previous judgments in similar cases, including Ginger Clothing Pvt. Ltd. Vs. CCE, Thane and Shree Karpagambal Mills Ltd. Vs. CCE, Tirunelveli, where it was held that duty payment on such material through cenvat credit and admissibility of cenvat credit for the duty paid were permissible. Consequently, the Tribunal found in favor of the appellant, setting aside the impugned order, and allowed the appeals.

This detailed analysis of the judgment highlights the issues of duty payment on duty-free materials and the admissibility of cenvat credit, providing a comprehensive understanding of the legal reasoning and precedents considered by the Tribunal in reaching its decision.