2018 (9) TMI 169 - AT - Central Excise

CENVAT Credit - capital goods - goods manufactured by them was cleared by availing the exemption under N/N. 30/2004-CE dated 09/07/2004 - Department was of the view that the appellant will not be entitled to the benefit of the credit on capital goods in view of the Rule 6 (4) of the Cenvat Credit Rules, 2004 which bars the availment of credit on capital goods used exclusively in the manufacture of exempted goods. Held that - Admittedly, such capital goods have been predominantly used for manufacture and clearance of finished products without payment of duty by availing the exemption as per N/N. 30/2004 ibid. But the fact remains that a small portion of the finished products has in fact been cleared on payment of duty without availing said exemption. The Tribunal in the case of Commissioner of Central Excise, Maduari V/s Eastman Spinning Mills Pvt. Ltd 2010 (11) TMI 815 - CESTAT, CHENNAI had occasion to consider a similar case in which the Tribunal has held that there was no bar to the availment of exemption under Notification No. 30/2004 by a manufacturer availing capital goods credit. Thus, it cannot be said that the capital goods have been exclusively used in the manufacture of exempted goods. Consequently, the bar specified Rule 6 (4) will not be applicable - appeal dismissed - decided against Revenue.

Summary

Issues:
- Entitlement to Cenvat credit on capital goods used in manufacturing exempted goods.

Analysis:
The appeal was filed by Revenue against the Order-in-Appeal where the respondent, engaged in manufacturing manmade fabrics, availed Cenvat Credit on capital goods during the period of March 2015 to 2016. The dispute arose as the appellant cleared a small portion of fabrics without availing the exemption under Notification No. 30/2004-CE. The Department contended that the appellant could not avail the credit on capital goods under Rule 6(4) of the Cenvat Credit Rules, 2004, which prohibits credit on capital goods used exclusively in the manufacture of exempted goods. The original authority denied the credit, but the Commissioner (Appeals) allowed it, leading to the Revenue's appeal.

During the hearing, the Revenue argued that the capital goods were used for manufacturing goods cleared without payment of duty under the said notification, and the small quantity cleared on payment of duty was an attempt to wrongly avail the credit. The respondent's Counsel contended that since a portion of goods was cleared on payment of duty, the bar under Rule 6(4) did not apply. The Counsel also highlighted instances of export and job work done for manufacturers who cleared goods on payment of duty, supported by relevant case laws.

The Tribunal analyzed whether the respondent was entitled to the Cenvat credit on capital goods, considering that while most goods were cleared without duty, a small portion was cleared on payment. Referring to a similar case, the Tribunal observed that when goods could be cleared either with or without duty, capital goods were not exclusively used in the manufacture of exempted goods. Consequently, the Tribunal upheld the impugned order, rejecting the Revenue's appeal, as the capital goods were not exclusively used in manufacturing exempted goods, making Rule 6(4) inapplicable.