2010 (1) TMI 558 - AT - Central Excise

Cenvat credit - on capital goods used in manufacture of exempted final product - Department was not furnished with necessary details in relation to the availment of credit on inputs and capital goods by the applicants and definitely there was suppression of facts Pre-deposit - financial hardship Held that - do not find any prima facie case having been made out in favour of the applicants and do not find any material in support of the plea of financial hardship.

Summary

Issues Involved:
1. Admissibility of Cenvat credit on capital goods used in the manufacture of exempted goods.
2. Applicability of Rule 6(4) of the Cenvat Credit Rules, 2004.
3. Invocation of the extended period of limitation for issuing the show cause notice.
4. Alleged suppression of facts and misstatement by the applicants.
5. Financial hardship claim by the applicants.

Detailed Analysis:

1. Admissibility of Cenvat Credit on Capital Goods:
The applicants were engaged in manufacturing cement and availed Cenvat credit on capital goods during April 2006 to April 2007. The Commissioner of Central Excise disallowed credit amounting to Rs. 1,12,12,565/- and imposed an equivalent penalty, stating that the capital goods were used to manufacture exempted goods, which is not permissible under Rule 6(4) of the Cenvat Credit Rules, 2004.

2. Applicability of Rule 6(4) of the Cenvat Credit Rules, 2004:
The applicants argued that Rule 6(4) should not apply since the capital goods would eventually be used for manufacturing dutiable goods after the exemption period. However, the Tribunal referred to the Larger Bench decision in Spenta International Ltd. v. Commissioner of Central Excise, which determined that Cenvat credit eligibility is based on the dutiability of the final product at the time of receipt of the capital goods. Therefore, the Tribunal held that the applicants were not entitled to the credit during the exemption period.

3. Invocation of the Extended Period of Limitation:
The applicants contended that the Department was aware of their intention to use the capital goods for both exempted and dutiable goods, as communicated in their letter dated 7th March 2005. However, the Tribunal found that the Department only became aware of the actual credit availed through the applicants' letter dated 14th February 2008. Thus, the Tribunal justified the invocation of the extended period of limitation for issuing the show cause notice.

4. Alleged Suppression of Facts and Misstatement:
The Tribunal noted that the applicants did not provide necessary details regarding the Cenvat credit availed until February 2008. The Commissioner found that there was suppression of facts and misstatement by the applicants, which the Tribunal upheld. The Tribunal concluded that the Department was not furnished with necessary details until April 2008, indicating suppression of facts.

5. Financial Hardship Claim:
The applicants claimed that pre-deposit would cause undue hardship but failed to substantiate this claim with necessary materials. The Tribunal emphasized that financial hardship must be substantiated with evidence, which was not provided by the applicants. Therefore, the Tribunal dismissed the plea of financial hardship.

Conclusion:
The Tribunal dismissed the application for stay of the impugned order, finding no prima facie case in favor of the applicants. However, it stayed the penalty amount until the disposal of the appeal. The applicants were directed to deposit the disallowed credit amount along with interest within twelve weeks. The case was scheduled for compliance reporting on 17th May 2010.