2022 (2) TMI 57 - AT - Central Excise

CENVAT Credit - capital goods - input services - credit utilized for payment of duty at 4% on cotton yarn exported by them - capital goods used exclusively for the manufacture of exempted goods - credit denied on capital goods when they have opted to avail benefit of Nil rate of duty under the Exemption Notification - simultaneous availing the benefit of Notification 29/2004 as amended by Notification 58/2008 and another Notification 59/2008 - period (07.12.2008 to 06.07.2009) - applicability of Board s circular dated 26.11.2010 - HELD THAT - In the present case, the appellants were paying duty @ 4% on the goods manufactured by using the very same capital goods. There is no room for doubt that the capital goods were not exclusively used for manufacture of exempted goods. The Tribunal in the case of ST. COTTEX EXPORTS (P) LTD. VERSUS COMMISSIONER OF C. EX., LUDHIANA 2010 (1) TMI 1048 - CESTAT NEW DELHI had occasion to analyse this issue in regard to Notification No.30/2004-CE and Notification No.29/2004-CE. and it was held that Under sub-rule (4) of Rule 6 of Cenvat Credit Rules, 2004, capital goods Cenvat credit is inadmissible only in respect of those capital goods which are exclusively used in the manufacture of exempted goods. In present case it cannot be said that the capital goods in question had been used exclusively for the manufacture of fully exempted finished products. Though it is alleged in the show cause notice that the appellants have availed credit on input services, the Ld. Counsel for appellants has asserted that the issue is with regard to disallowance of credit on capital goods only. The disallowance of credit cannot be justified - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of availing CENVAT credit on capital goods.
2. Simultaneous availing of multiple exemption notifications.
3. Application of Section 5A (1A) of the Central Excise Act, 1944.
4. Validity of CBEC Circulars regarding exemption notifications.
5. Use of capital goods exclusively for manufacturing exempted goods.

Detailed Analysis:

1. Eligibility of availing CENVAT credit on capital goods:
The appellants availed CENVAT credit on capital goods and used this credit to pay excise duty on exported cotton yarn. The department argued that under Section 5A (1A) of the Central Excise Act, 1944, the appellants were prohibited from paying duty on goods that were wholly exempted and thus were not entitled to take credit on capital goods. The show cause notice proposed to disallow this credit and recover it along with interest.

2. Simultaneous availing of multiple exemption notifications:
The appellants utilized multiple notifications during the relevant period:
- Notification No.29/2004-CE (amended by Notification No.58/2008-CE) prescribed a ‘Nil’ rate of duty.
- Notification No.30/2004-CE prescribed a ‘Nil’ rate of duty conditional on not taking CENVAT credit on inputs.
- Notification No.59/2008-CE prescribed a 4% ad valorem duty.
The appellants availed benefits from these notifications simultaneously, which the department contested, arguing that under Section 5A (1A), the appellants could not choose to pay duty under a notification when another provided an unconditional exemption.

3. Application of Section 5A (1A) of the Central Excise Act, 1944:
The department relied on Section 5A (1A) which states that if an exemption is granted absolutely, the manufacturer cannot pay duty on such goods. The appellants argued that Notification No.30/2004 did not exempt cotton yarn absolutely but conditionally, allowing them to avail CENVAT credit on capital goods and pay duty under Notification No.59/2008-CE.

4. Validity of CBEC Circulars regarding exemption notifications:
The appellants cited various CBEC Circulars (No.795/21/2000-CX, No.845/03/2006-CX, and No.858/16/2007-CX) and a Trade Notice (No.14/2008) confirming that multiple notifications could be availed simultaneously. The department relied on Circular No.937/27/2010-CX, which stated that manufacturers could not opt to pay duty under Notification No.59/2008-CE when Notification No.29/2004-CE provided an unconditional exemption. This Circular was quashed by the jurisdictional High Court, which held that assessees could choose the more beneficial notification.

5. Use of capital goods exclusively for manufacturing exempted goods:
The department alleged that capital goods were used exclusively for manufacturing exempted goods, thus disallowing CENVAT credit under Rule 6 (4) of the CENVAT Credit Rules, 2004. The Tribunal found that the capital goods were used for both exempted and dutiable goods, making the credit on capital goods admissible. This was supported by the decision in S.T. Cotton Exports (P) Ltd. vs. CCE Ludhiana, which was upheld by the Punjab & Haryana High Court.

Conclusion:
The Tribunal concluded that the appellants were entitled to avail CENVAT credit on capital goods and simultaneously benefit from multiple notifications. The disallowance of credit was unjustified, and the appeals were allowed with consequential relief. The Tribunal's decision was based on the interpretation of Section 5A (1A), the validity of CBEC Circulars, and the factual use of capital goods.