2004 (3) TMI 295 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification No. 5/94-C.E. regarding Modvat credit restriction on petroleum products used as fuel.

Analysis:
The appeal in question pertains to the restriction of Modvat credit to 10% as per Notification No. 5/94-C.E. for certain petroleum products used as fuel. The Commissioner (Appeals) upheld the restriction but set aside the penalty and interest. The revenue appealed against this decision seeking confiscation and imposition of penalty and interest. The Tribunal noted that the disputed fuels could also be used as additives and blending agents, not just as fuels. The Tribunal emphasized that the credit restriction under the notification should apply only when the use is other than fuel. The Tribunal highlighted that even though modvat provisions were extended to Chapter 27 inputs, using them as fuel did not entitle the user to take Modvat credit unless specified under Rule 57B. The Tribunal discussed amendments to the notification and emphasized that the cap of 10% credit applies to inputs used as fuels, as per previous Tribunal decisions. The Tribunal reasoned that the ineligibility for partial credit under Rule 57A should not automatically apply to inputs notified under Rule 57B. The Tribunal emphasized that a proper legislative action was necessary to curtail credit.

Moreover, the Tribunal pointed out that the Government acknowledged the lacuna and amended the rules to restrict credit to 95%, indicating that without a corresponding cap for Rule 57B inputs, full credit was permissible. The Tribunal concluded that the lower authorities' orders restricting credit on inputs used as fuels were improper and set them aside, allowing the appeal by the appellants. Consequently, the revenue's appeal was rejected.