2016 (4) TMI 1109 - AT - Central Excise

Cenvat credit on inputs namely, fabrics lying in stock or in process or on inputs contained in finished goods lying in stock as specified in the Table - appellant Company is a registered Dealer of grey fabric under the Central Excise Rules - Notification No. 35/2003-CE (NT) dated 10.04.2003 - Held that - Grey fabrics directly purchased by processor from manufacturer, that would be undisputedly are input with the processor and merely because a dealer is introduced in between manufacturer and the processor, nature of product as input cannot undergo any change. So, the dealer is entitled to avail credit with Serial No. 1(c) of the Table as input. See COMMR. OF C. EX. & CUS., AHMEDABAD-I Versus RAJKAMAL TEXTILE TRADERS 2009 (2) TMI 476 - GUJARAT HIGH COURT - Decided in favour of assessee

Summary

Issues:
Interpretation of Notification No. 35/2003-CE (NT) regarding CENVAT credit on grey fabric as input or finished goods lying in stock.

Analysis:
The judgment by the Appellate Tribunal CESTAT Ahmedabad involved a dispute regarding the eligibility of a company, registered as a "Dealer" of grey fabric under the Central Excise Rules, to avail CENVAT credit. The appellant had availed credit under Serial No. 1(c) of the table in Notification No. 35/2003-CE (NT) for "input lying in stock or in process" and supplied grey fabric to a processor for further processing. The Revenue contended that the appellant should have availed credit under Serial No. 2(b) for "finished goods lying in stock." The adjudicating authority upheld the Revenue's view, leading to the imposition of a demand for CENVAT credit, interest, and penalties on the company and its Director.

The Tribunal considered various decisions, including CCE & Cus., Ahmedabad vs. Rajkamal Textile Traders, Zeenath Prints Pvt. Limited vs. CCE, Surat, CCE, Ahmedabad vs. Deepak Impex Pvt. Limited, and Ambica Fashion vs. CCE, Ahmedabad, to address the issue. It was established that grey fabrics, even when held by a dealer, retain their status as inputs if directly purchased by a processor from the manufacturer. The introduction of a dealer between the manufacturer and processor does not alter the nature of the product as an input. Therefore, the Tribunal concluded that the dealer was entitled to credit under Serial No. 1(c) of the Notification.

The Tribunal referred to the decision of the Hon'ble Gujarat High Court in the case of CCE & Cus., Ahmedabad vs. Rajkamal Textile Traders, which highlighted substantial questions of law related to the classification of grey fabrics as inputs. The Tribunal affirmed that grey fabrics are inputs for processors, regardless of the involvement of a dealer in the transaction chain. Consequently, the Tribunal dismissed the Revenue's contentions and allowed the appeals filed by the appellants, setting aside the impugned order.

In conclusion, the judgment clarified the interpretation of Notification No. 35/2003-CE (NT) regarding the classification of grey fabric as inputs or finished goods for the purpose of availing CENVAT credit. The decision emphasized that the nature of the product as an input remains unchanged, irrespective of the presence of a dealer between the manufacturer and processor, thereby entitling the dealer to credit under the relevant serial of the Notification.