2009 (5) TMI 297 - AT - Central Excise

Allegation that the appellants availed inadmissible credit on capital goods of Rs. 1,08,160/- during the period September, 2005 to March, 2006 in violation of Rule 6(4) of Cenvat Credit Rules, 2004. It has further been alleged that capital goods were used exclusively for the manufacture of exempted final product. - Exemption is not based upon the value or quantity of clearance made in a financial year. So, credit availed by the appellants is hit by Rule 6(4) of Rules. - demand of Cenvat credit is upheld - However, I find force in the submission of the appellants in respect of imposition of penalty. It appears that the appellants had not utilized the credit taken on the capital goods during the material period. Further, in the present case eligibility of credit is the subject of interpretation of provisions of law. So, imposition of penalty under Rule 15 of Rules is not warranted.

Summary

Issues:
1. Exemption from central excise duty on Cotton Yarn under notification No. 30/2004-CX.
2. Alleged availing of inadmissible credit on capital goods in violation of Rule 6(4) of Cenvat Credit Rules, 2004.
3. Confirmation of demand of Cenvat credit and penalty imposition.
4. Interpretation of exemption notification and penalty imposition under Rule 15 of Cenvat Credit Rules, 2002.

Analysis:
1. The appellants, engaged in the manufacture of Cotton Yarn, opted for exemption from central excise duty under notification No. 30/2004-CX. However, they were alleged to have availed inadmissible credit on capital goods during a specific period. The original authority confirmed the demand of Cenvat credit and imposed a penalty of an equal amount under Rule 15 of Cenvat Credit Rules, 2002. The Commissioner (Appeals) upheld this decision.

2. The main contention of the appellants was that denial of credit on capital goods was not proper as per the exemption notification. They argued that they had not utilized the credit in question, hence penalty imposition was unwarranted. However, Rule 6(4) of the Rules clearly states that no Cenvat credit shall be allowed on capital goods exclusively used in the manufacture of exempted goods. In this case, the capital goods were indeed used solely for exempted finished products, making the credit availed by the appellants in violation of Rule 6(4).

3. The Tribunal found that the condition of exemption under notification No. 30/2004 was for availing the benefit of the notification, not for utilizing the credit. The demand for Cenvat credit was upheld due to the violation of Rule 6(4). However, regarding the penalty, it was noted that the appellants had not utilized the credit during the material period, and the eligibility of credit was a matter of interpreting the law. Therefore, imposition of penalty under Rule 15 was deemed unwarranted.

4. Consequently, the Tribunal upheld the demand of Cenvat credit but set aside the penalty. The appeal was disposed of in this manner after a detailed analysis of the exemption notification, the provisions of the Cenvat Credit Rules, and the specific circumstances of the case.