2018 (2) TMI 1387 - AT - Central Excise

CENVAT credit - capital goods - input services - area based exemption - Original Authority held that the appellant being the same Central Excise assessee under a single registration, cannot take credit on such capital goods and input services as they are not covered by Cenvat Credit Rules. Held that - if the unit is one and the same as contended by the Revenue, the products which are otherwise eligible for exemption under the said notification are to be cleared without payment of duty. It is not tenable to hold that some products can avail area based exemption and others need not avail area based exemption. Admittedly, the lower Authorities recorded that various products manufactured in the distillery unit are not excluded from the area based exemption. There is contradiction in the approach by the Revenue while denying the credit on capital goods and input services which were admittedly used in setting up and further manufacture in distillery unit. This aspect requires a fresh consideration - appeal allowed by way of remand.

Summary

Issues:
Eligibility of Cenvat Credit for capital goods and input services due to the expansion of manufacturing process by adding a distillery facility adjacent to the sugar mill.

Analysis:
The appellant operated a sugar mill availing area-based exemption under Notification No. 50/2003 CE. They expanded by adding a distillery and claimed Cenvat Credit for capital goods and input services for the distillery. The dispute arose as the revenue challenged the credit claiming the appellant, under a single registration, cannot take credit for goods not covered by Cenvat Credit Rules due to area-based exemption. The appellant argued the distillery was a separate recognized unit not availing the exemption. The Original Authority held against the appellant, citing no duty discharge on goods due to exemption.

The appellant contended the sugar factory and distillery were independent, recognized by various authorities, and products from the distillery were duty-paid without exemption. They intimated the jurisdictional officer about manufacturing units for Cenvat Credit. The show cause notice's timing was challenged on limitation grounds and merit.

The Revenue argued the appellant was one registrant, lacking separate registration for the distillery, hindering credit under Cenvat Credit Rules. The AR highlighted the need for legal recognition for separate units. The duty payment by the appellant for certain products from the distillery raised verification concerns on separate factory recognition.

The Tribunal noted the appellant's area-based exemption for the sugar factory and the distillery's lack of separate registration. The Tribunal observed duty payment for some distillery products in 2014, conflicting with the Revenue's stance on a single entity availing exemption. The contradiction in denying credit for goods used in the distillery, not excluded from exemption, required fresh consideration.

The Tribunal found the impugned order unsustainable, necessitating a reevaluation of recognizing the distillery and sugar units as separate entities for Central Excise and Cenvat Credit Rules. The appellant was granted an opportunity to present their case, directing the Original Authority to decide after considering all legal submissions.

The appeal was allowed for remand, providing a comprehensive analysis of the recognition issue for separate entities under Central Excise and Cenvat Credit Rules.