2016 (12) TMI 912 - AT - Central Excise

Whether the respondent assessee is entitled to Cenvat credit on capital goods received, prior to 25/12/2005, when the trial production was started and thereafter commercial production started from 04/01/2006? - Held that - I find that in the facts of the present case, it is an admitted fact that the Asbestos Cement Sheets, for which the respondent assessee registered with Revenue, falling under Chapter Heading No.68114010 of Central Excise Tariff Act, 1985 is dutiable. The appellant had only availed a conditional exemption for a short period which under the facts had been applied for and availed subsequent to the receipt of capital goods. Even, on the basis of Larger Bench of this Tribunal, in the case of Spenta International Ltd. 2007 (8) TMI 25 - CESTAT, MUMBAI , the products of the appellant, being Asbestos Cement Sheets was taxable under Chapter Heading No.68114010 of Central Excise Tariff Act, 1985. Accordingly, the credit eligibility is determined in favor of respondent with reference to the dutiability of final product on the date of receipt of capital goods. I also placed reliance on the decision of Superior Judicial Forum of this Tribunal, West Zonal Bench, Ahmedabad in the case of Commissioner of Central Excise Versus Gujarat Propack 2008 (9) TMI 170 - GUJARAT HIGH COURT , wherein the capital goods received for manufacture of Granules out of waste arising in manufacture in assessee s unit, which was cleared under exemption. Since as per the assessee s claim, they were not of requisite quality, gradually assessee refined manufacturing process to obtain Granules of requisite quality and most of which quantity is used in the manufacture of film. There was no intention to produce Granules to be cleared on exemption, but to produce Granules for use in the manufacture of film. But in the trial period they could not produce Granules of requisite quality and had to clear them under exemption and that the use of the machine is to be seen with regard to its working life and not utilization in a short specific period. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Entitlement to Cenvat credit on capital goods received prior to the start of commercial production.
2. Interpretation of relevant notifications regarding duty rates and exemptions.
3. Validity of disallowing Cenvat credit by Revenue.
4. Applicability of Cenvat credit rules and provisions.
5. Impact of conditional exemptions on Cenvat credit eligibility.

Analysis:
Issue 1: The appeal by Revenue questions the entitlement of the respondent assessee to Cenvat credit on capital goods received before commercial production commenced. The appellant was registered for manufacturing Asbestos Cement Sheets and sought Cenvat credit on these goods. The Tribunal considered the relevant provisions and ruled that the denial of 50% credit based on the timing of credit utilization was contrary to the rules. The denial of credit solely due to non-utilization in the same financial year of receipt was deemed incorrect.

Issue 2: The case involved interpreting notifications related to duty rates and exemptions applicable to Asbestos Cement Sheets. The Tribunal noted that the goods initially attracted a Nil rate of duty under a specific notification, which was later replaced by a notification imposing an 8% duty on goods containing specified materials. The respondent had availed exemption under the relevant notification, which was granted after the receipt of capital goods.

Issue 3: The Show Cause Notice issued by Revenue alleged that the respondent was not entitled to Cenvat credit due to manufacturing tax-free goods during the capital goods receipt period. The Notice proposed disallowing Cenvat credit and imposing penalties. The Tribunal, however, found in favor of the respondent, allowing the appeal based on the Division Bench ruling and the provisions of Cenvat credit rules.

Issue 4: The Tribunal analyzed the applicability of Cenvat credit rules and provisions in determining the eligibility of the respondent for Cenvat credit on capital goods. The decision highlighted the importance of following the rules regarding credit utilization and the timing of credit claims based on the duty paid on capital goods.

Issue 5: The Tribunal considered the impact of conditional exemptions on Cenvat credit eligibility. It was noted that the respondent's availing of a conditional exemption for a short period did not preclude them from claiming Cenvat credit on capital goods. The decision cited a relevant case to support the argument that refining manufacturing processes and subsequent product use should be considered in determining Cenvat credit eligibility.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Order-in-Appeal in favor of the respondent. The decision considered the dutiability of the final product, the timing of exemption availing, and the application of Cenvat credit rules in determining the respondent's entitlement to Cenvat credit on capital goods.