2004 (3) TMI 176 - AT - Central Excise

Cenvat/Modvat - Penalty - Interpretation of Rules - Held that - the Modvat credit on the inputs lying in stock as well as contained in finished goods lying in stock as on 1-3-2003 is not available to the Respondents - as the issue involved is one of interpreting the Modvat Rules no penalty is imposable on the Respondents - appeal allowed - decided partly in favor of respondent.

Summary

Issues:
- Appeal against Order-in-Appeal allowing Modvat credit to the Respondents
- Interpretation of Cenvat Credit rules regarding exempted goods
- Recoverability of wrongly utilized Cenvat credit on inputs

Analysis:
1. The appeal was filed by the Revenue against the Order-in-Appeal allowing Modvat credit to the Respondents. The matter was called, but no one appeared on behalf of the Respondents. The learned SDR highlighted that the issue had been decided by the Appellate Tribunal in a previous case, affirmed by the Supreme Court, regarding the inadmissibility of Cenvat Credit on inputs used in the manufacture of exempted goods. The Respondents were manufacturing Fruit/Juice based drinks and mineral water, exempted from duty under a specific notification. The Commissioner (Appeals) set aside the Adjudication Order based on a decision by the Larger Bench of the Tribunal. The learned SDR argued that as per Rule 57AB of the Central Excise Rules, Cenvat Credit cannot be allowed for inputs used in exempted goods manufacturing, citing relevant case laws to support the argument.

2. The Tribunal considered the submissions and records, noting that the Respondents had taken Cenvat Credit when their products were dutiable, but later exempted from duty. The demand was sought only for unutilized inputs and inputs in finished goods stock. The Tribunal emphasized that Cenvat Credit aims to eliminate the cascading effect of Central Excise duty, available only if the final product is dutiable. Since the goods manufactured by the Respondents were completely exempted from duty, the Cenvat Credit on inputs used in those goods was not admissible. Referring to the decision in the case of Albert David Ltd., the Tribunal highlighted Rule 57AD, stating that Cenvat credit shall not be allowed on inputs used in manufacturing exempted goods, with provisions for recovery of wrongly utilized credit. The Tribunal upheld that Modvat credit on inputs in stock and finished goods as of a specific date was not available to the Respondents.

3. The Tribunal distinguished the decision in the case of Ashok Iron & Steel Fabricators and affirmed the decision in the case of Albert David Ltd., which was upheld by the Supreme Court. Consequently, the Tribunal held that interpreting the Modvat Rules was the crux of the issue, and no penalty could be imposed on the Respondents. Therefore, the appeal was disposed of based on the interpretation of Cenvat Credit rules regarding exempted goods and the recoverability of wrongly utilized credit on inputs, in line with the precedents and legal provisions cited during the proceedings.