2014 (7) TMI 193 - AT - Central Excise

CENVAT Credit - Manufacture of exempted goods in partial year - assesee is paying 8% of the value of exempted goods - revenue seeks to reversal for the entire credit - Held that - It may happen that on one day the appellant may manufacture only dutiable product and on the other they may only manufacture exempted product. Whether in such a scenario, the duty liability of the assessee is required to be assessed based upon day to day basis? The answer would be an emphatic NO . The periods cannot be segregated in that manner so as to finalize the assessee liability. Accordingly, there is no warrant to do so in terms of the Cenvat credit Rules. It seems that in the present case the amount of 8% was much lower than the amount of credit so availed, thus prompting the revenue to take a reverse stand than the one taken by them in routine i.e. to in 8% of the value of the final product, which in most of the cases is higher than the credit involved - Cenvat credit cannot be disallowed if an assessee manufactures only exempted goods for a part of the year and for the balance year manufactures both exempted and dutiable goods - Decided in favour of assessee.

Summary

Issues:
1. Admissibility of modvat credit on molasses for manufacturing Ethyl Alcohol denatured.
2. Liability to reverse Cenvat credit when only exempted products are manufactured.
3. Assessment of duty liability based on day-to-day manufacturing scenarios.

Analysis:

Issue 1 - Admissibility of modvat credit on molasses for manufacturing Ethyl Alcohol denatured:
The appellant, engaged in manufacturing Ethyl Alcohol-rectified and denatured, availed modvat credit on duty paid molasses used as raw material. However, the department observed that only exempted goods, i.e., rectified alcohol, were manufactured using the modvat credit, without manufacturing Ethyl Alcohol denatured. A show cause notice was issued for contravention of rules, leading to a demand for recovery of the balance modvat credit. The Commissioner (Appeals) upheld the demand, stating that the appellants were not entitled to credit on molasses for manufacturing only exempted goods, contrary to the provisions of the Central Excise Rules.

Issue 2 - Liability to reverse Cenvat credit when only exempted products are manufactured:
The crucial question was whether, during a period of manufacturing only exempted products, the appellant was required to reverse the entire Cenvat credit or pay 8% of the value of the exempted product as per Rule 57 CC. Despite maintaining records for both dutiable and exempted products, in March 2000, only exempted products were manufactured. The revenue directed the reversal of Cenvat credit. The Tribunal emphasized that segregating periods based on manufacturing scenarios to determine liability was not warranted under the Cenvat credit Rules. Referring to a precedent, the Tribunal ruled in favor of the appellant, stating that Cenvat credit cannot be disallowed solely because an assessee manufactures only exempted goods for a part of the year.

Issue 3 - Assessment of duty liability based on day-to-day manufacturing scenarios:
The revenue's case relied on scrutinizing the periods during which exempted products were manufactured. The Tribunal clarified that duty liability assessment should not be based on day-to-day manufacturing variations. It highlighted that the 8% payment was lower than the availed credit, prompting a different approach from routine practice. Citing a relevant case, the Tribunal set aside the impugned order and granted relief to the appellant, aligning with the decision that disallowing Cenvat credit for manufacturing only exempted goods is not justified.

In conclusion, the judgment addressed the admissibility of modvat credit, liability reversal when manufacturing exempted products, and the assessment of duty liability based on manufacturing scenarios, ultimately ruling in favor of the appellant based on legal interpretations and precedents.