2009 (9) TMI 545 - AT - Central Excise

Textiles and textile article- The appellants are manufacturer and exporters of synthetic yarn falling under Chapter Headings No. 55.09 and 55.01 of the Central Excise Tariff Act, 1985. During the course of scrutiny of ER-1 returns filed by the appellants, it came to the notice of the Department that the appellants had not reversed the credit availed on the Furnace Oil. The furnace oil was one of the inputs used in the manufacture of steam for generation of power which in turn was being used in the manufacture of final product by the appellants. In spite of such failure to reverse the credit of duty till clearance of the final product, the appellants had sought to claim the exemption in terms of the Notification No. 30/2004-C.E., dated 9-7-2004 in relation to the specified goods classifiable under Headings No. 5509 and 5510. The Notification clearly imposed a condition that the benefit thereunder could not availed in respect of the goods for which credit of duty on inputs had been taken under Cenvat Credit Rules, 2004. The dispute relates to the denial of benefit under the Notification No. 30/2004-C.E., dated 7th July, 2004. Held that- benefit of notification no. 30/204-C.E. denied as furnance oil used in generation of steam for power and credit availed on it was not reversed till clearance of final product. Thus, the appeal has dismissed.

Summary

Issues:
Challenge to order confirming duty liability, interest, and penalty imposed by the Commissioner.

Analysis:
The judgment deals with the challenge to an order passed by the Commissioner confirming duty liability, interest, and penalties on the appellants. The appellants, manufacturers and exporters of synthetic yarn, were found to have not reversed the credit availed on Furnace Oil used in the manufacturing process. The Commissioner confirmed duty liability amounting to Rs. 2,63,65,939/-, Rs. 64,87,078/-, and Rs. 84,37,985/- pursuant to show cause notices. Additionally, penalties of Rs. 50 lakhs, Rs. 30 lakhs, and Rs. 40 lakhs were imposed. The issue revolved around the denial of benefit under Notification No. 30/2004-C.E., dated 9-7-2004, which required refraining from taking credit of duty paid on inputs for claiming exemption. The appellants argued that they had reversed the credit before utilizing it, thus should not be denied the benefit under the said notification.

The appellants contended that the credit reversal before utilization should entitle them to the benefit under the notification. They relied on Board's Circulars and legal precedents to support their claim. The dispute centered on whether the credit was effectively utilized by the appellants despite being reversed before the clearance of final products. The Commissioner's decision was challenged based on the timing of credit reversal and utilization, as per the requirements of the notification.

The judgment referenced legal precedents and rulings to determine the applicability of the notification and the reversal of credit. The Apex Court's decision in Chandrapur Magnet Wires (P) Ltd. case and the Allahabad High Court's ruling in Hello Minerals Water (P) Ltd. case were cited to establish the necessity of reversing Cenvat credit before clearance of final products. The judgment emphasized the importance of maintaining separate accounts for credits utilized in products subject to duty and those exempted from duty. The appellants' argument that mere credit taking does not amount to utilization was countered by the interpretation that any debiting of public exchequer's funds for future use constitutes utilization.

The judgment also referred to a similar issue in Hind Lamps Ltd. v. CCE, Kanpur, where it was held that credit reversal must precede the clearance of final products to avoid being considered as credit utilization. Ultimately, based on the precedents and reasoning provided, the appeals were dismissed, finding no merit in the appellants' arguments.