2017 (5) TMI 1129 - AT - Central Excise

CENVAT credit - area based exemption - N/N. 50/2003-CE dt. 10.1.2003 w.e.f. 30.10.2004 - denial of credit on the ground that clearances effected under the said notification are not required to pay any duty, therefore, they are not entitled to take any credit - Held that - the goods produced by the respondents are mentioned in the first schedule to the CETA, 1985. It is not the case of the respondents that the final products manufactured by them falls in Annexure-I appended to the notification. Therefore, the contention of the respondents, that the goods manufactured by them are not specifically exempted is completely erroneous. Since the final products manufactured by the respondent are specified in the notification and the same is cleared from the unit located in the specified zone, the goods manufactured by the respondents are exempted goods. Since the only final product manufactured by respondents are held to be exempted goods, the benefit of CENVAT Credit is not eligible in the terms of Rule 6(1) of CCR, 2004. It is not the case of the respondents that they are manufacturing dutiable as well as exempted goods - the respondents are entitled to keep the credit on inputs as on 30.10.2004 for payment of duty as and when such a need arises - appeal allowed - decided in favor of Revenue.

Summary

Issues:
Interpretation of Rule 6 of Cenvat Credit Rules regarding the allowance of credit on inputs used in the manufacture of exempted goods.

Analysis:
The case involved appeals adjudicated based on the order of the Hon'ble High Court of Himachal Pradesh. The respondents, engaged in manufacturing steel wires, barbed wire, and galvanized wire, availed Cenvat Credit but were directed not to take credit after opting for an exemption under Notification No. 50/2003-CE. The Adjudicating Authority held that no credit is allowable for goods cleared without payment of duty under the said notification. The Commissioner (Appeals) allowed the appeals, stating that the final products were neither exempted nor attracted nil rate of duty. The Revenue appealed, arguing that Rule 6 prohibits credit on inputs used in manufacturing exempted goods to prevent cascading effect. The respondents contended that since their goods were not specifically exempted, credit should be allowed. The Tribunal analyzed the Notification and ruled that since the final products were specified in the Notification and cleared from a specified zone, they were exempted goods, making them ineligible for Cenvat Credit under Rule 6(1) of CCR, 2004.

The Tribunal found the Commissioner (Appeals) reasoning incorrect, as the goods manufactured by the respondents were indeed exempted under the Notification. The Tribunal clarified that the exemption covered all goods specified in the Central Excise Tariff Act except those in Annexure-I of the Notification. Since the respondents' products were in the first schedule of the Tariff Act and not in Annexure-I, they were considered exempted goods. The Tribunal emphasized that the respondents were only manufacturing exempted goods, making them ineligible for Cenvat Credit as per Rule 6(1) of CCR, 2004. The Tribunal also noted that the credit taken on inputs before opting for the exemption did not need to be reversed, allowing the respondents to retain the credit for future duty payments.

In conclusion, the Tribunal set aside the Commissioner (Appeals) orders, ruling in favor of the Revenue. The judgment clarified that the respondents' products were exempted goods under the Notification, making them ineligible for Cenvat Credit under Rule 6(1) of CCR, 2004. The Tribunal allowed the Revenue's appeals based on these findings.