2017 (2) TMI 667 - AT - Central Excise

MODVAT credit - denial on the ground that the capital goods is used for cotton carded, silver which falls under chapter 52.02 and is not excisable therefore as per annexure Rule 57Q capital goods used in the manufacture of such finished good is not eligible for the modvat credit - Held that - similar issue decided in the case of Thuran Spining Mills Vs. Commissioner 1999 (5) TMI 309 - CEGAT, MADRAS where the Tribunal held that the Cenvat credit on capital goods used for producing silver cotton carded falling under chapter 52.02 is admissible under Rule 57Q - the appellant is entitle for the credit on the capital goods used for manufacture of intermediate goods i.e. silver, cotton carded which was further used in the manufacture of dutiable cotton yarn - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of Cenvat credit on capital goods used in the manufacture of intermediate goods.
2. Interpretation of Rule 57Q of Central Excise Rules, 1945 regarding admissibility of credit.
3. Time bar on demand due to issuance of show cause notice after six months.
4. Clarificatory nature of Notification No. 60/94-CE(NT) dated 21-10-1994.
5. Nature of goods manufactured and their excisability for determining credit eligibility.

Issue 1: Denial of Cenvat credit on capital goods used in the manufacture of intermediate goods:
The appellant availed Cenvat credit on capital goods used in manufacturing intermediate goods like silver, which were further utilized in producing final products such as cotton yarn. The adjudicating authority denied the credit based on the premise that capital goods used for manufacturing finished excisable goods not specified in Rule 57Q's annexure are ineligible for credit. The appellant contended that since the intermediate goods were excluded from the negative list in the annexure, credit should be allowed. The Commissioner(Appeals) rejected the appeal, leading to the appellant approaching the Tribunal.

Issue 2: Interpretation of Rule 57Q for credit admissibility:
The consultant for the appellant argued that Notification No. 60/94-CE(NT) was clarificatory, making credit admissible even for manufacturing exempted goods like silver and cotton carded. It was emphasized that the final product, cotton yarn, was dutiable and not excluded under Rule 57Q, making the credit eligible. The Revenue's representative reiterated the denial based on the goods being exempted and falling under the exclusion list of Rule 57Q's annexure.

Issue 3: Time bar on demand and clarificatory nature of notification:
The appellant claimed the demand was time-barred as the show cause notice was issued after six months without any suppression of facts. Additionally, the consultant argued that Notification No. 60/94-CE(NT) was clarificatory in nature, supporting the admissibility of credit even before the amendment.

Issue 4: Nature of goods manufactured and excisability for credit eligibility:
The Tribunal analyzed that the manufactured goods, like cotton carded and silver, were intermediate products and not finished excisable goods. These intermediates were further used in producing dutiable cotton yarn, which was cleared after duty payment. The Tribunal emphasized that for determining credit eligibility on capital goods, the excisability of the final product, not the intermediate goods, should be considered. It referenced previous judgments, including one from the Hon’ble Madras High Court, supporting the admissibility of credit on capital goods used for intermediate goods like silver cotton carded.

Issue 5: Nature of goods and legal precedents:
The Tribunal highlighted the nature of silver and cotton carded, emphasizing their characteristics that made them unsuitable for direct market sale. It referenced legal precedents from the Delhi High Court and Supreme Court regarding the marketability and distinct identity of goods for excisability. The Tribunal also cited previous decisions upholding the admissibility of Cenvat credit on capital goods used for producing intermediate goods like silver cotton carded.

In conclusion, based on consistent legal interpretations and precedents, the Tribunal allowed the appeal, setting aside the impugned order and granting the appellant credit on capital goods used for manufacturing intermediate goods utilized in the production of dutiable cotton yarn.