2007 (7) TMI 322 - HC - Central Excise

Cenvat/Modvat credit - it is evident that the assessee-company was reversing the credits upon which Modvat credit was claimed before the inputs were put into process for production of exempted goods - Held that - the case of the assessee was squarely covered by circular issued by the Central Board of Excise and Customs No. 231/66/96/ES dated 25-7-1996 wherein the Board had clarified that the credit of the duty paid on the common input is admissible when used in the manufacture of the final product once the said credit on duty paid inputs going into the exempted category of the final product is debited in the RG 23A Part II account before removal of the exempted final product on actual or pro rata basis - decided against Revenue.

Summary

Issues:
Appeal under Section 35G of the Central Excise Act, 1944 against contravention of Rule 57CC regarding Modvat credit on common inputs for dutiable and exempted products.

Analysis:
The department filed an appeal under Section 35G of the Central Excise Act, 1944, challenging a judgment by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) regarding the contravention of Rule 57CC by the respondent-assessee, a pharmaceutical products manufacturer. The respondent had availed Modvat credit on common inputs for both dutiable and exempted products without maintaining separate inventory or paying the required 8% of the value of exempted goods as per Rule 57CC. A show cause notice was issued, leading to confirmation by the Commissioner of Central Excise & Customs, Aurangabad, directing the assessee to pay a specified amount and imposing a penalty on the Senior General Manager. The Commissioner of Appeals later allowed the appeal, prompting the department to appeal to the High Court.

The High Court noted that the assessee had reversed the Modvat credit on inputs used for exempted products before their utilization, as observed by the Assessing Officer. This practice was in line with a circular issued by the Central Board of Excise and Customs, which clarified the admissibility of duty credit on common inputs used in the manufacture of final products, both exempted and dutiable. The circular required debiting the credit of duty paid on inputs going into the exempted category before the removal of exempted final products. The High Court found that the assessee's actions aligned with the circular's provisions and the decision in a relevant Supreme Court case. As a result, the CESTAT's decision to allow the appeal based on these factual details was upheld.

In conclusion, the High Court found no fault with the CESTAT's observations and the application of the circular's guidelines to the assessee's case. No substantial question of law merited consideration, leading to the summary dismissal of the department's appeal.