2010 (1) TMI 465 - AT - Central Excise

Cenvat/Modvat - Quantum of credit - inputs procured from 100% EOU. Since duty paid on inputs only excise duty, restriction on quantum of duty paid taken as credit limited to duty paid on such goods procured from other source. Held that - provisions relating to such restrictions in Cenvat Credit Rules, 2001 substantially the same as provision in Notification No. 5/94-C.E.(N.T.). order of original authority permitting credit to the extent of Rs. 45,080 only restored.

Summary

Issues:
Interpretation of Notification No. 2/95-C.E. in the context of Cenvat Credit Rules, 2001.

Analysis:
The case involves an appeal by the Department against the order of the Commissioner (Appeals) regarding the eligibility of a manufacturer to claim credit under Notification No. 2/95-C.E. The respondent procured goods from a 100% EOU and paid duty based on Customs Tariff, availing an exemption under the said notification. The dispute arose when the respondent took credit for the full duty amount paid by the supplier, leading to a demand by the Original Authority, which was partly set aside by the Commissioner (Appeals). The Department contended that the respondent should be allowed credit for the CVD portion of customs duty actually paid. On the other hand, the respondent argued that they were entitled to credit equivalent to the duty payable if goods were procured from a DTA source, citing liberalization under Cenvat Credit Rules, 2001 compared to Notification No. 5/94-C.E.

The Tribunal analyzed the restrictions on Modvat credit under Notification No. 5/94-C.E. and the corresponding provisions in Cenvat Credit Rules, 2001 concerning inputs from 100% EOU. Referring to the decision in the case of Vikram Ispat, the Tribunal emphasized the method to determine the quantum of credit available, based on the additional duty of customs leviable on similar goods if imported, and the actual duty paid by the 100% EOU. The Tribunal clarified that the credit should be restricted to the extent of duty paid on such goods procured from other sources, as per the provisions.

Ultimately, the Tribunal concluded that the issue required a fine interpretation of legal provisions and did not involve any suppression or misstatement by the respondents. Consequently, the appeal was disposed of by setting aside the Commissioner (Appeals) order on demand, restoring the Original Authority's decision to permit credit to a limited extent, upholding the demand for interest on the redetermined amount, and maintaining the setting aside of the penalty imposed.

In summary, the judgment delves into the intricacies of interpreting Notification No. 2/95-C.E. in light of the Cenvat Credit Rules, 2001, emphasizing the restrictions on credit availability for duty paid on goods procured from a 100% EOU. The decision provides clarity on the quantum of credit allowed, aligning with the legal provisions and past precedents to resolve the dispute between the Department and the respondent.