2015 (10) TMI 1219 - AT - Central Excise

Disallowance of CENVAT Credit - Input used in export of exempted product - Held that - In the case of Drish Shoes Ltd (2010 (5) TMI 334 - HIMACHAL PRADESH HIGH COURT ), the question before the Hon ble Himachal Pradesh High Court was whether an assessee exclusively manufacturing wholly exempted goods chargeable to Nil tariff rate of duty is eligible to avail CENVAT Credit of duty paid on said inputs and input services under Rule 6(1) of the CENVAT Credit Rules, 2002/CENVAT Credit Rules, 2004, used in the manufacture of such exempted goods, even if such goods are exported. The Hon ble High Court held that an assessee manufacturing the goods chargeable to Nil duty, is eligible to avail CENVAT Credit paid on the inputs under the exception clause to Rule 6 (1) as contained in Rule 6(5) of CENVAT Credit Rules 2002 and Rule 6(6) of CENVAT Credit Rules 2004, used in the manufacture of such goods, if the goods are exported - there is no dispute that the entire goods were exported. Hence, there is no reason to deny the CENVAT Credit to the Appellant. Accordingly, the impugned order is set aside - Decided in favour of assessee.

Summary

Issues: Disallowance of CENVAT Credit on inputs used in exempted final product and clearance without furnishing bond.

Analysis:
1. The Appellants were involved in manufacturing kitchen items and exported 100% of the manufactured items. The Adjudicating authority disallowed the CENVAT Credit on the grounds that the inputs were used in the exempted final product and the final product was cleared without furnishing a bond. The Tribunal referred to various decisions of the Hon'ble High Court and Tribunal to address the issue at hand.

2. The Tribunal specifically mentioned the case of Drish Shoes Ltd where the question was whether an assessee manufacturing wholly exempted goods chargeable to Nil tariff rate of duty could avail CENVAT Credit on inputs used in the manufacture of such exempted goods, even if they are exported. The Hon'ble Himachal Pradesh High Court ruled that such an assessee is eligible to avail CENVAT Credit under the exception clause to Rule 6(1) of the CENVAT Credit Rules, provided the goods are exported.

3. The Tribunal noted that in the present case, as the entire goods manufactured by the Appellants were exported, there was no justification to deny the CENVAT Credit. Consequently, the impugned order disallowing the credit was set aside, and the appeal filed by the Appellant was allowed.

4. The judgment was delivered by Mr. P.K. Das, and the legal representatives for the Appellant and Respondent were Shri Hardik Modh and Shri S.K. Shukla, respectively. The Tribunal thoroughly examined the facts, legal provisions, and precedents to conclude that the Appellant was entitled to the CENVAT Credit despite the inputs being used in the manufacture of exempted final products that were exported.