2007 (7) TMI 321 - HC - Central Excise

Cenvat/Modvat credit - Whether the learned CESTAT is right in holding that the respondent/assessee can avail the Modvat credit on the furnace oil beyond the extent of 10% as prescribed in the Notification No. 5/94-C.E. (N.T.)? Held that - In the light of notification under Section 112(1) held that no credit is admissible on any duty paid on high speed diesel oil at any time during the period commencing on and from 16-3-1995 and ending with the date the Finance Act 2000 received assent of the President i.e. on 1-4-2000. Learned Assistant Solicitor General although claimed that high speed diesel oil was used as fuel in the reported case he is not able to satisfy us that high speed diesel oil referred in Section 112 of Finance Act 2000 can be equated with furnace diesel oil which is the input with which we are concerned in present appeal and we are unable to agree with him that because it is used as fuel it can be so equated covered and governed by Section 112 of the Finance Act 2000. The decision relied upon we are of the view is not applicable. Thus the substantial question of law as framed by us stands answered in the affirmative. Hence appeal is dismissed.

Issues:
1. Interpretation of Modvat credit on inputs under Rule 57B.
2. Applicability of notification restricting Modvat credit to 10% ad valorem duty.
3. Comparison of treatment under Rule 57A and Rule 57B.
4. Validity of Modvat credit on furnace oil.
5. Impact of Supreme Court judgments on Modvat credit eligibility.
6. Review of earlier Supreme Court decisions on credit denial validation.
7. Equivalence of high speed diesel oil and furnace diesel oil for credit purposes.

Issue 1: Interpretation of Modvat credit on inputs under Rule 57B
The respondent-assessee, engaged in manufacturing excisable goods, availed Modvat credit on furnace oil as an input. The department initially limited the credit to 10% ad valorem duty based on a notification under Rule 57A. However, CESTAT allowed the appeal, stating that the restriction did not apply to fuel under Rule 57B, leading to the department's appeal before the High Court.

Issue 2: Applicability of notification restricting Modvat credit
The High Court admitted the appeal based on the question of whether the respondent could avail Modvat credit on furnace oil beyond the 10% limit set by Notification No. 5/94-C.E. (N.T.). The Supreme Court's decision in Jindal Poly Films Ltd. v. Commissioner of Central Excise clarified that such restrictions did not apply to inputs listed in Rule 57B, providing a basis for the High Court's analysis.

Issue 3: Comparison of treatment under Rule 57A and Rule 57B
The Supreme Court highlighted the distinct treatment of goods under Rule 57B compared to Rule 57A, emphasizing the non obstante clause in Rule 57B. The court concluded that the special treatment under Rule 57B rendered the 10% ad valorem limit inapplicable, supporting the respondent's position on Modvat credit eligibility.

Issue 4: Validity of Modvat credit on furnace oil
The High Court examined the eligibility of Modvat credit on furnace oil, referencing the Supreme Court's observations on the specified duty and the separate notification limiting credit under Rule 57B. The court's analysis aligned with the interpretation that the restrictions did not extend to inputs covered by Rule 57B.

Issue 5: Impact of Supreme Court judgments on Modvat credit eligibility
The Supreme Court's decision in Jindal Poly Films Ltd. clarified the eligibility of Modvat credit beyond the 10% limit, providing a legal precedent that influenced the High Court's decision to dismiss the appeal based on the substantial question of law framed.

Issue 6: Review of earlier Supreme Court decisions on credit denial validation
The High Court considered an earlier Supreme Court decision in Commissioner of Central Excise v. Associated Cement Companies Ltd., which involved a review petition allowing credit denial validation under Section 112 of the Finance Act, 2000. However, the court distinguished the applicability of this decision to the current case involving Modvat credit on furnace oil.

Issue 7: Equivalence of high speed diesel oil and furnace diesel oil for credit purposes
The High Court rejected the argument equating high speed diesel oil under Section 112 of the Finance Act, 2000 with furnace diesel oil used as an input for Modvat credit. The court concluded that the two types of oil were not equivalent for credit purposes, emphasizing the specificity of the legal provisions in the context of the appeal.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the reasoning behind the High Court's decision.

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