2014 (2) TMI 868 - AT - Central Excise

Availment of CENVAT Credit on capital goods - Exemption on export goods - Benefit of Notification No. 30/2004-C.E., dated 9-7-2004 - Held that - Export goods are not exempted goods. In the present case, the appellant has exported the readymade garments manufactured by them. Only in respect of DTA clearance, the appellant chose to avail the exemption. As regards the export goods, they did not avail of the exemption. Therefore, the availment of capital goods credit cannot be said to be for exclusive manufacture of exempted goods . Therefore, the appellant was rightly entitled to Cenvat credit duty of excise duty paid on the capital goods used in the manufacture of export goods. Coming to the utilization of the said credit, the appellant has utilised said credit for payment of duty on hangers and zippers which were procured duty free in terms of the Notification No. 43/2001. Appellant was liable to discharge duty liability on the zippers and hangers in terms of Rule 6 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. Rule 6 provides two options. One option is to clear the goods on payment of duty. The other option is to clear the goods without payment of duty to the manufacturer of hangers and zippers who shall add the same to his non-duty paid stock and dealt with accordingly. The appellant chose to first option. There is no bar in the said Rules, which bars the appellant in clearing the goods on payment of duty. Therefore, the appellant has discharged the duty on the hangers and zippers in accordance with law. In view of the above, the impugned order is not sustainable in law - Decided in favour of assessee.

Summary

Issues:
1. Availment of Cenvat credit on capital goods used in the manufacture of exempted goods.
2. Utilization of Cenvat credit for payment of duty on goods procured duty-free but not used for intended purpose.
3. Interpretation of Rule 6 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.

Issue 1: Availment of Cenvat credit on capital goods used in the manufacture of exempted goods.

The appellant, a manufacturer of knitted readymade garments, availed Cenvat credit on the excise duty paid on capital goods used for manufacturing both domestic clearance and export goods. The Revenue contended that the appellant was not eligible for this credit as the capital goods were used exclusively for exempted goods. The appellant argued that since the goods manufactured for export were not exempted, the credit was rightfully availed. The Tribunal agreed with the appellant, stating that the export goods were not exempted, and therefore, the credit on capital goods used for their manufacture was valid. The impugned order demanding recovery of credit was set aside, and the appeal was allowed.

Issue 2: Utilization of Cenvat credit for payment of duty on goods procured duty-free but not used for intended purpose.

The appellant procured zippers and hangers duty-free for manufacturing export goods but could not use them as intended. Consequently, the appellant cleared these unused goods in the domestic market and paid duty using Cenvat credit on capital goods. The Revenue argued that the appellant should have returned the unused goods to the original manufacturer instead of clearing them with duty payment. However, the Tribunal found that Rule 6 of the Central Excise Rules provided two options for such situations, and the appellant chose to clear the goods on payment of duty, which was a valid option under the law. Therefore, the Tribunal held that the duty payment on the unused goods using Cenvat credit was in accordance with the law, and the impugned order was not sustainable.

Issue 3: Interpretation of Rule 6 of the Central Excise Rules.

The Tribunal interpreted Rule 6 of the Central Excise Rules in the context of the appellant's case. Rule 6 allows manufacturers to clear goods on payment of duty or return them to the original manufacturer in certain circumstances. The Tribunal found that the appellant's choice to clear the unused goods with duty payment was a valid option under the rule. The Revenue's contention that the duty payment was not sustainable in law was rejected, and the Tribunal upheld the appellant's action as compliant with the provisions of Rule 6. Consequently, the impugned order was set aside, and the appeal was allowed.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by both parties, and the Tribunal's reasoning leading to the decision in favor of the appellant.