2006 (1) TMI 129 - AT - Central Excise

The appellants were treating their MODVAT account as one and using credit in that account for discharging duty liability for cotton and polyester verieties of yarn, irrespective from which source the MODVAT credit was obtained. It is not permissible to fragment if so as to restrict it only to particular lines of production. Such an allocation of credit, raw material-wise or final product-wise is not permitted by the rule. Nor it is practicable.

Summary

Issues: Interpretation of CENVAT credit rules regarding utilization of credit for different final products.

In this judgment by the Appellate Tribunal CESTAT, New Delhi, the issue revolved around the interpretation of CENVAT credit rules concerning the utilization of credit for different final products. The appellants, who were manufacturing yarn from cotton and polyester, were using MODVAT credit for both types of yarn. The Commissioner held that the input credit for cotton yarn could only be used for discharging duty on cotton yarn, and the same applied to polyester yarn. This decision led to duty demands being confirmed based on this restricted view.

The appellant-assessee contended that the Commissioner's view of treating the CENVAT account as separate for each final product was contrary to the provisions of the rule, Supreme Court judgment, and instructions of the Central Board of Excise and Customs. They highlighted that the CENVAT Credit Rules, 2002, allowed the use of credit for payment of duty on any final product, irrespective of the source of credit. They relied on the Supreme Court's judgment emphasizing the indefeasibility of credit and the lack of correlation between raw material and final product in utilizing the credit.

Moreover, the appellant's counsel referred to the Central Board of Excise and Customs' instructions, which emphasized that once credit is earned for a specified input, there should be no restriction on using it for payment of duty on any final product manufactured by the manufacturer. The Tribunal noted that the Commissioner's findings were contrary to the rule, Supreme Court judgment, and Board's instructions. They emphasized that MODVAT credit account is indefeasible and cannot be fragmented to restrict it to specific lines of production, as it is impracticable and not permitted by the rule.

Ultimately, the appeals were allowed, and the impugned order was set aside, providing consequential relief to the appellants. The judgment clarified the unrestricted nature of utilizing MODVAT credit for payment of duty on any final product, as per the provisions of the CENVAT Credit Rules, judicial pronouncements, and instructions from the Central Board of Excise and Customs.