2006 (7) TMI 43 - AT - Central Excise

Central Excise Respondent availed Cenvat credit on fibres and other inputs/capital goods used in relation to manufacture of yarn Duty paid on yarn at the time of clearance of fabrics instead of spindle stage and reversed credit taken Eligible for benefit of notification

Summary

Issues:
- Interpretation of Notification No. 14/2002 regarding payment of duty on yarn
- Validity of Trade Notice No. 40/96 under Central Excise Rules, 2002
- Contravention of conditions for availing full exemption under Notification No. 14/2002

Interpretation of Notification No. 14/2002 regarding payment of duty on yarn:
The case involved a dispute where the respondents opted for exemption under Sr.No.1 of Notification No. 14/2002, which required payment of duty on yarn at the spindle stage. However, due to difficulties in determining the yarn quantity, they chose to pay the duty at the time of clearance of grey fabrics for home consumption. The Revenue contended that this contravened the notification, leading to a demand for differential duty. The Deputy Commissioner confirmed the duty, but the Commissioner (Appeals) set it aside based on Trade Notice No. 40/96 allowing duty payment at the fabric stage. The Revenue appealed this decision.

Validity of Trade Notice No. 40/96 under Central Excise Rules, 2002:
The Revenue argued that Trade Notice No. 40/96 should not apply under the present Central Excise Rules, 2002, as it lacked a corresponding provision to the erstwhile Rule 49A. They contended that the respondents' actions, including availing Cenvat credit on inputs, went against the conditions for full exemption under the notification. The Revenue sought to set aside the Commissioner (Appeals) order and restore the Assistant Commissioner's decision.

Contravention of conditions for availing full exemption under Notification No. 14/2002:
The respondents defended their position, citing the validity of Trade Notice No. 40/96 under Rule 32 and Rule 33 of the Central Excise Rules. They argued that paying duty at the fabric stage and reversing credit was permissible, supported by previous tribunal decisions and a High Court ruling. They emphasized that the duty paid on yarn exceeded the duty payable on grey fabric, indicating no loss of duty. The Tribunal upheld the Commissioner (Appeals) decision, considering the difficulty in paying duty at the spindle stage and the validity of reversing Modvat credit.

In conclusion, the Tribunal dismissed the Revenue's appeal, finding no fault in the Commissioner (Appeals) order. The decision was based on the allowance of yarn duty payment at the fabric stage due to practical difficulties, supported by previous rulings and the concept of reversing Modvat credit.