2016 (10) TMI 827 - HC - Central Excise

Modvat credit - common input used in manufacture of excisable as well as exempted product - Rule 57-AD of the Central Excise Rules, 1944 - amendment of rule by Finance Act of 2010 - the substantial questions of law, on which the appeal was admitted, do not survive any longer - appeal dismissed.

Summary

Issues:
1. Availing MODVAT credit on common inputs for manufacturing dutiable and exempted final products.
2. Reversal of credit at the time of clearance of final products.
3. Show cause notice for incorrect practice and demand of duty.
4. Appeal process before Commissioner of Central Excise (Appeals) and tribunal.
5. Interpretation of Rule 6(3)(b) of the CENVAT Credit Rules, 2002.
6. Review petition and acceptance of the arrangement by the Revenue.

Analysis:
1. The case involved the assessee engaging in manufacturing dutiable and exempted final products under different tariff headings. A common intermediate product was used in the manufacturing process. The assessee availed MODVAT credit on common inputs and reversed the credit at the time of final product clearance as per Rule 57-CC of the Central Excise Rules, 1944 until a change in credit availing approach.

2. Following a tribunal decision, a show cause notice was issued to the assessee for incorrect practice, demanding duty payment equivalent to 8% of the final product value under Rule 57-AD of the Central Excise Rules, 1944. A substantial demand was raised, which was confirmed by an order-in-original later appealed by the assessee before the Commissioner of Central Excise (Appeals).

3. The Commissioner allowed the appeal, leading the Revenue to approach the tribunal. The tribunal relied on precedent cases and upheld the decision in favor of the assessee, prompting the Revenue to appeal further to the High Court. Meanwhile, a Division Bench judgment in another case clarified the liability of the assessee under Rule 6(3)(b) of the CENVAT Credit Rules, 2002, amended retrospectively by the Finance Act of 2010.

4. The High Court dismissed the appeal, noting that the arrangement accepted by the Revenue following a review petition resolved the substantial legal questions initially raised. The court found the appeal no longer sustainable based on its previous orders and the tribunal's decisions. The judgment emphasized the acceptance of the arrangement by the Revenue, leading to the dismissal of the appeal without costs.