2009 (4) TMI 200 - HC - Central Excise

Summary

Issues involved: Whether CESTAT is right in allowing Modvat credit of duty paid on inputs furnace Oil/LSHS used in the manufacture of exempted final products.

Summary:
In this civil miscellaneous appeal, the assessee, a manufacturer of cotton yarn on plain reel hanks and cotton yarn on cones/cheese, availed Cenvat credit on Furnace Oil/LSHS used as fuel for both dutiable and exempted finished products. The assessee was asked to reverse the credit for inputs used in the manufacture of exempted products, leading to a penalty. The Tribunal upheld the appeal based on Rule 6 of CENVAT Credit Rules, emphasizing the need for separate accounts for inputs used in exempted goods. However, precedents from Gujarat High Court and High Court of Punjab and Haryana highlighted exceptions for inputs used as fuel, where separate accounts are not mandatory.

The Gujarat High Court ruling emphasized that denial of credit cannot be insisted upon when inputs are used as fuel. Similarly, the High Court of Punjab and Haryana held that Modvat credit on inputs used in both dutiable and exempted goods is admissible when inputs are intended to be used as fuel. The Tribunal's order was deemed sustainable under relevant provisions of the Central Excise Act and Cenvat Credit Rules.

Ultimately, it was concluded that when inputs are intended to be used as fuel, separate accounts are not required. Both the Appellate Authority and the Tribunal agreed that no recovery could be demanded for inputs used as fuel in the manufacture of both duty paid and non-duty paid products. Consequently, the substantial question of law was decided against the Revenue, leading to the dismissal of the civil miscellaneous appeal without costs.