2017 (10) TMI 609 - AT - Central Excise

CENVAT credit - inputs procured by the appellants from an EHTP unit - Department was of the view that the appellant is not eligible to take 100% of the CENVAT credit of duty paid on inputs and instead they are eligible to avail only 50% as provided under Sub Rule 7 of Rule 3 of CCR, 2004 - Held that - the EHTP unit has not paid duty by availing the exemption under Sl.No.2 of the N/N .23/2003. The primary purpose and scope of CENVAT Credit scheme is to neutralize the cascading effect of duty portion on inputs suffered by the manufacturer. It is not disputed that appellant was borne the full quantum of duty amount passed on to him by the EHTP unit - when the EHTP has paid duty the appellant is eligible to avail credit of the entire duty paid on the goods. The department cannot restrict the credit availed to 50% when the EHTP has not applied the notification for the purpose of paying duty - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Availment of Cenvat credit on inputs procured from an EHTP unit during December 2005 to January 2006.

Analysis:
The case revolved around the appellants' eligibility to avail Cenvat credit on inputs obtained from an EHTP unit. The Department contended that the appellants could only claim 50% of the Cenvat credit instead of the full amount. The appellants initially reversed 50% of the alleged excess credit under protest. Subsequently, a Show Cause Notice was issued, leading to the disallowance of the excess credit by the original authority. The Commissioner (Appeals) upheld this decision, prompting the appellants to file an appeal before the Tribunal.

The appellant's counsel argued that as per Sub Rule 7 of Rule 3 of CCR, the restriction to avail only 50% credit applies when the EHTP unit supplying the goods avails duty exemption under specific notifications. In this case, it was established that the EHTP unit had paid the full duty amount without availing any exemption, making the appellants eligible for the entire credit. The counsel cited the judgment in the case of Molex (India) Pvt. Ltd. Vs. CCE, Bangalore to support this argument.

On the other hand, the Department reiterated the findings of the impugned order, maintaining that the excess credit availed by the appellants should be disallowed. After hearing both sides, the Tribunal concluded that since the EHTP unit had paid the duty without utilizing any exemption, the appellants were entitled to claim the full credit amount. The Tribunal emphasized that the purpose of the Cenvat Credit scheme is to neutralize the duty impact on inputs, which the appellants had borne in full. The Tribunal's decision was influenced by the precedent set in the case of Molex (India) Pvt. Ltd.

In light of the arguments and evidence presented, the Tribunal found the demand for restricting the credit to 50% to be unjustifiable. Consequently, the impugned order disallowing the excess credit was set aside, and the appeal was allowed with consequential relief. The judgment highlighted the importance of correctly interpreting the rules governing Cenvat credit eligibility, especially concerning duty exemptions and payment scenarios involving EHTP units.