2015 (10) TMI 844 - AT - Central Excise

Denial of CENVAT Credit - Conversion of EOU to DTA Unit - Carry forward of unutilized CENVAT Credit - The entire case of the Revenue is that the amounts which have been carried forward after reversal of appropriate duty on the inputs lying in stock, finished goods and WIP, the balance credit lapses as per the provisions of sub-rule 3 of Rule 11 of Cenvat Credit Rules while it is the case of the appellant that they are eligible to utilize the amount for discharge of duty liability on other products manufactured by them. Held that - adjudicating authority has not disputed the fact that the appellant utilized the carried forward CENVAT credit towards discharge of their duty liability in respect of goods i.e. aggregates, components and parts of tractors. This undisputed facts would mean that the appellant herein was not manufacturing only exempted agricultural tractors but was also manufacturing other products on which duty liability arises. - from bare perusal of the sub-rule the same will apply only in a situation where final products are exempted and lying in stock. In our considered view the above sub-rule may not be applicable in the facts of this case which is not disputed that there is a discharge of Central Excise duty liability on the other finished products manufactured and cleared like aggregates, components & parts of tractors. - Decision in the case of Shree Baba 2014 (11) TMI 749 - CESTAT NEW DELHI followed - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
1. Whether the CENVAT credit carried forward by the appellant from EOU to DTA unit should be held as lapsed?
2. Whether the provisions of Rule 11 of Cenvat Credit Rules, 2004 are applicable in this case?
3. Whether the appellant is eligible to utilize the CENVAT credit for discharging duty liability on products other than exempted agricultural tractors?

Analysis:
1. The appellant, a former EOU now a DTA unit, carried forward unutilized CENVAT credit after discharging duties on inputs during conversion. The department contended that the credit should lapse as the appellant's final product, agricultural tractors, became fully exempt from duty. The adjudicating authority agreed, leading to a dispute.
2. The appellant argued that they also manufactured parts & components subject to duty, paid upon conversion. They contended that Rule 11 applies only to exempted goods, not to dutiable products like theirs. They highlighted their registration specifying the manufacturing of non-exempt items and cited a relevant tribunal decision.
3. The department argued that Rule 11 applies due to the main activity being agricultural tractors, while the appellant emphasized their other dutiable products. The tribunal analyzed Rule 11(3) and precedent, concluding that the rule doesn't apply when multiple products are manufactured, some exempt and some dutiable. They found the impugned order unsustainable and allowed the appeal, setting it aside.

This judgment clarifies the application of Rule 11 of the Cenvat Credit Rules in cases involving the conversion of units from EOU to DTA, emphasizing the distinction between exempted and dutiable products in utilizing CENVAT credit.