2009 (8) TMI 510 - HC - Central Excise

Cenvat Credit- inputs- 1. Whether Tribunal is justified in vacating the demand when it has been proved on the record that party was availing Modvat credit on the inputs namely Residual Furnace Oil (R.F.O.) used as input for generation of steam used for manufacturing of dutiable as well as exempted goods and party was not maintaining any separate accounts of the said inputs being used in manufacture of exempted goods as per provisions of Rules 57CC(9)? 2. Whether party is liable to pay an amount of Rs.1, 79, 52, 77, 469/- Rupees one crore seventy-nine lakh (sic) only which is equivalent to 8% of the price of said exempted goods in terms of Rule 57CC(9) of the Rules which include the credit of Rs.1, 80, 49, 568/- (Rupees one crore eighty lakh forty-nine thousand five hundred sixty-eight only)? In the light of the decision of CCE v. Super Auto (I) Ltd. 2008 (221) E.L.T. 41 (P & H) wherein after considering Rule 57CC of the Excise Rules it has been held that in cases where inputs are intended to be used as fuel the provision of sub-rule (9) of Rule 57CC of the Excise Rules would not apply and the assessee would be entitled to avail credit of fuels even though part of it is used to manufacture of exempted final products. Therefore following the same reasoning and principle of law especially when Rule 6 of the Rules is pari materia with Rule 57CC of the erstwhile Excise Rules we have no other option but to dismiss the instant appeal.

Summary

Issues:
Appeal under Section 35G of the Central Excise Act, 1944 against the order of the Customs, Excise and Service tax Appellate Tribunal, New Delhi. Determination of questions of law regarding Modvat credit on inputs used for manufacturing both dutiable and exempted goods. Challenge to the order passed by the Commissioner regarding demand for payment of duty, penal action, and interest. Tribunal's decision allowing the appeal based on interpretation of Rule 57CC and Rule 6 of the Cenvat Credit Rules, 2001.

Analysis:
The case involved an appeal by the Revenue under Section 35G of the Central Excise Act, 1944 against the order of the Customs, Excise and Service tax Appellate Tribunal, New Delhi. The main issue revolved around the entitlement of the assessee to avail Modvat credit on inputs used for manufacturing both dutiable and exempted goods. The Tribunal framed questions of law regarding the maintenance of separate accounts for such inputs under Rule 6 of the Cenvat Credit Rules, 2001. The Tribunal allowed the appeal, setting aside the Commissioner's order, based on the interpretation of relevant provisions and previous decisions.

The Tribunal's decision was challenged in the instant appeal before the High Court. The High Court analyzed Rule 6 of the Cenvat Credit Rules, which is similar to Rule 57CC of the erstwhile Excise Rules. The Court highlighted the requirement for maintaining separate accounts for inputs used in the manufacture of dutiable and exempted goods, except for inputs intended to be used as fuel. The Court referred to a Division Bench judgment that clarified the application of sub-rule (9) of Rule 57CC in cases where inputs are intended to be used as fuel.

The High Court dismissed the instant appeal, emphasizing that the assessee was entitled to avail credit for inputs used as fuel, even if part of it was utilized in manufacturing exempted final products. The Court noted that previous appeals by the Revenue had been dismissed based on the same reasoning and legal principles. The Court rejected the argument that separate inventory and accounts were necessary, citing the clear exclusion of inputs intended to be used as fuel under sub-rule (2) of Rule 6. The Court concluded that the appeal lacked merit and upheld the Tribunal's decision.

In conclusion, the High Court's detailed analysis of the provisions of Rule 6 and relevant precedents led to the dismissal of the appeal, affirming the assessee's entitlement to Modvat credit on inputs used for manufacturing both dutiable and exempted goods. The Court's decision was based on a thorough examination of the legal framework and established principles in similar cases.