2009 (5) TMI 302 - AT - Central Excise

Deemed credit- The appellant is an independent processor. They received grey cotton fabrics falling under Chapter 5207 and unprocessed man-made fabrics and processed the same and cleared the processed fabrics on payment of excise duty. They availed the benefit of Notification No. 6/02-C.E., dated 1-3-02 and took deemed credit while paying the duty on the finished processed fabrics cleared by them. - A careful reading of the notification reveal that it does not provide for one to one correlation of inputs and finished products mentioned therein - we hold that the appellants herein are eligible for availing the deemed credit under Notification No. 6/2002 on non-duty paid grey fabrics as duty paid yarn was present in final product even though it was not directly used therein - Consequently, both the impugned orders are set aside and all the three appeals are allowed

Summary

Issues Involved:
1. Eligibility for deemed credit under Notification No. 6/02-C.E.
2. Interpretation of inputs and final products under the Notification.
3. Relevance of Board's clarification and previous Tribunal decisions.

Detailed Analysis:

1. Eligibility for Deemed Credit Under Notification No. 6/02-C.E.
The appellant, an independent processor, processed grey cotton fabrics and unprocessed man-made fabrics, and cleared the processed fabrics on payment of excise duty, availing the benefit of Notification No. 6/02-C.E. The original authority and the Commissioner (Appeals) held that the appellant was not eligible for deemed credit because the grey cotton fabrics and unprocessed man-made fabrics were not specifically listed as inputs under column 2 of the Notification. Consequently, a demand of duty of Rs. 9,27,509/- along with interest and an equal penalty was confirmed.

2. Interpretation of Inputs and Final Products Under the Notification
The appellant contended that the duty paid on yarn used in the manufacture of grey fabrics should be considered for deemed credit. The Notification does not require a one-to-one correlation between inputs and final products. The explanation under clause (6) of the Notification suggests that deemed credit is extended even when grey fabrics are used for further processing. The Tribunal noted that the Notification lists various inputs, including dyes, chemicals, and packing materials, generally in respect of S. No. 2, indicating a broader interpretation.

3. Relevance of Board's Clarification and Previous Tribunal Decisions
The appellant relied on the Board's clarification dated 13-3-2003, which dealt with a similar situation under Notification No. 20/96-C.E. (N.T.), stating that grey fabrics made from duty-paid yarn/fibres should be eligible for deemed credit. This was supported by the Tribunal's decisions in cases such as Damini Printers (P) Ltd. v. CCE, Noida, where it was held that credit is available for processed fabrics processed from grey fabrics. The Tribunal emphasized that the Notification and Rule 11 of the Cenvat Credit Rules, 2002, allow deemed credit even if the declared inputs are not used directly but are contained in the final products.

Conclusion:
The Tribunal concluded that the deemed credit on processed fabrics was available even though there was no duty on the grey fabrics. The appeal was allowed with consequential relief as per law. The Tribunal's interpretation aligned with the broader intent of the Notification and previous clarifications and decisions, ensuring that the deemed credit mechanism serves its purpose without unnecessary restrictions.