2016 (11) TMI 47 - AT - Central Excise

Denial of CENVAT credit/MODVAT credit - final product exempt - Held that - the provisions of Modvat were embodied in the Rule 57 A of the Central Excise Rules which provided for allowing modvat credit on the inputs used in the final products charged to duty. In this case I find that undisputedly the duty has been paid on the final products manufactured by the appellants; though the products have subsequently been held as exempted. Further I find that even if the product was classified as exempted; the appellants were forbidden from claiming refund by the High Court. Therefore denial of Modvat is not justifiable; while the appellants were required to pay on the final products. It would also be discriminatory and contrary to the provisions of Rule 57 A. As such the Order-In-Original is not sustainable and the appellants are eligible to the modvat credit - denial of credit not justified - appeal rejected - decided against Revenue.

Summary

Issues:
1. Denial of CENVAT Credit on inputs used for manufacturing finished goods cleared on duty payment as directed by the High Court.
2. Dispute over the dutiability of the final products and the subsequent denial of Modvat credit by the Revenue.
3. Interpretation of Rule 57 A of the Central Excise Rules regarding the allowance of Modvat credit on inputs used in final products.

Analysis:
1. The appeal was filed against an order denying CENVAT Credit on inputs used for manufacturing finished goods cleared on duty payment as directed by the High Court. The first appellate authority had allowed the Modvat credit to the respondent, which was contested by the Revenue. The Revenue argued that since the final product was exempted, the respondent could not avail CENVAT credit. However, the first appellate authority upheld the respondent's right to the Modvat credit based on the duty paid on inputs. The Tribunal found that the first appellate authority correctly followed the law and upheld the order allowing the Modvat credit to the respondent.

2. The issue revolved around the dutiability of the final products and the subsequent denial of Modvat credit by the Revenue. The Tribunal noted that the goods were held dutiable in previous orders, and the Commissioner (Appeals) had allowed the Modvat credit for duty paid on inputs used in manufacturing the products. The Tribunal emphasized that even if the final products were classified as exempted later, the appellants were still required to pay duty on them. Denying the Modvat credit in such a scenario would be discriminatory and contrary to Rule 57 A of the Central Excise Rules. Therefore, the Tribunal held that the denial of Modvat credit was not justifiable, and the appellants were eligible for the credit.

3. The Tribunal delved into the provisions of Rule 57 A of the Central Excise Rules, which allowed for Modvat credit on inputs used in final products charged to duty. Despite the final products being held as exempted later, the duty had already been paid on them. The Tribunal emphasized that the denial of Modvat credit in such circumstances would go against the provisions of Rule 57 A and would be unjustifiable. Therefore, the Tribunal concluded that the order denying the Modvat credit was not sustainable, and the appellants were entitled to the credit as per the law. The appeal was rejected, upholding the order allowing the Modvat credit to the respondent.