2007 (6) TMI 152 - AT - Central Excise

Credit availed by assessee on inputs used in dutiable as well as non-dutiable goods Demand for entire amount of credit is not sustainable, only proportionate credit taken in respect of non-dutiable product can be demanded by Dept

Summary

Issues: Disallowance of Cenvat credit on duty paid molasses used in the manufacture of Ethyl Alcohol for human consumption.

Analysis:
The case involved the appellants using molasses for manufacturing Denatured Ethyl Alcohol, an excisable product, and Ethyl Alcohol for human consumption, a non-excisable product. The Adjudicating Commissioner disallowed the Cenvat credit taken by the assessee and imposed a penalty. The appellants argued that they had reversed the credit for molasses used in producing Ethyl Alcohol for human consumption and should be eligible for credit under Rule 6(3)(a)(i) of the Cenvat Credit Rules, 2004.

Upon examination, the Tribunal found that Rule 6(3)(a)(i) pertains to exempted goods falling within a specific category, which did not include Ethyl Alcohol for human consumption as it is not excisable. The main Rule 3 of the Cenvat Credit Rules allows manufacturers to take credit of duty on inputs for final products, defined as excisable goods. Since Ethyl Alcohol for human consumption is not excisable, it cannot be considered a final product, making the credit on molasses for its production inadmissible.

As a result, the Tribunal set aside the demand for the entire Cenvat credit taken by the appellants and remanded the matter to the Original Authority for determining the credit taken in respect of non-excisable goods. The Original Authority was directed to allow a reasonable opportunity if the appellants had already reversed credit for inputs used in non-excisable goods. The appeal was allowed by way of remand, and the Stay Petition was disposed of accordingly.