2005 (5) TMI 223 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification No. 7/2001 and Notification No. 16/2001 regarding the utilization of credit for payment of duty on fabrics.
2. Applicability of compounded levy scheme to fabrics manufactured before 1-5-2001 but cleared thereafter.
3. Whether the debarring clause in Notification No. 17/2001 applies to credit earned prior to opting for the compounded levy scheme.

Analysis:
1. The appellant, a manufacturer of man-made fabrics, transitioned to the compounded levy scheme from 1-5-2001. The dispute arose concerning the utilization of credit earned before this transition for fabrics manufactured before 1-5-2001 but cleared later on ad valorem duty payment basis. The revenue contended that the amended Notification No. 17/2001 prohibited assessees under the compounded levy scheme from availing Cenvat Credit. However, the appellant argued that the debarring clause should apply only to inputs received post opting for the scheme, not to the credit already earned.

2. The Tribunal agreed with the appellant's interpretation. The compounded levy scheme, effective from 1st May 2001, did not cover fabrics manufactured before this date but cleared thereafter. Therefore, the appellant rightfully utilized the credit earned on inputs for fabrics cleared post the scheme's implementation. The Tribunal emphasized that the amendment to the notification applied prospectively to fabrics cleared under the compounded levy scheme. Thus, using credit for duty payment on fabrics manufactured pre-1-5-2001 but cleared later aligned with the legal provisions.

3. Consequently, the Tribunal set aside the impugned order and ruled in favor of the appellant, granting them consequential relief. The judgment clarified that the appellant's use of credit for duty payment on fabrics manufactured before 1-5-2001 but cleared post that date was in accordance with the law. This decision reaffirmed the appellant's entitlement to utilize the credit earned on inputs for clearing such fabrics. The judgment was pronounced in court on 26-8-2005.