2005 (2) TMI 369 - AT - Central Excise

Summary

Issues:
Manufacture of dutiable and exempted products from Molasses, Modvat/Cenvat credit on Molasses, Disallowance of credit and imposition of penalties under Central Excise Rules, 1944.

Manufacture of dutiable and exempted products from Molasses:
The respondents were involved in manufacturing 'Denatured Spirit', 'Rectified Spirit', and 'Extra Neutral Alcohol' from Molasses. 'Denatured Spirit' was dutiable, while the other two products were exempt from duty. The Department issued show cause notices proposing to disallow Modvat/Cenvat credit taken on Molasses used in manufacturing exempted products and to impose penalties. The original authority disallowed the credit and imposed penalties, which were later set aside by the Commissioner (Appeals). The appellants argued that they were engaged in manufacturing both dutiable and exempted products, and the benefit of availing Modvat/Cenvat credit on Molasses should not be denied even if only exempted products were manufactured during certain periods.

Modvat/Cenvat credit on Molasses:
The appellants contended that they were entitled to avail Modvat/Cenvat credit on Molasses as it was a common input for manufacturing both dutiable and exempted products. They had paid an amount equal to 8% of the price of exempted products under Rule 57CC(1)/57AD even during periods when only exempted products were manufactured. The Department sought to disallow the credit taken on Molasses, but the Commissioner (Appeals) held that there was no condition requiring simultaneous clearance of dutiable and exempted products for availing the benefit of Rules 57CC and 57AD. The Commissioner's decision was supported by Supreme Court and Tribunal rulings emphasizing the lack of a one-to-one correlation between input and final product in the Modvat/Cenvat Credit scheme.

Disallowance of credit and imposition of penalties under Central Excise Rules, 1944:
The Department had issued show cause notices proposing to disallow Modvat/Cenvat credit on Molasses and to impose penalties under Rules 173Q and 209. The original authority disallowed the credit and imposed penalties, which were later set aside by the Commissioner (Appeals). The Commissioner's decision was upheld by the Appellate Tribunal, emphasizing that the appellants were entitled to the benefit of Rules 57CC and 57AD even if only exempted products were manufactured during certain periods. The appeals of the Revenue were dismissed, affirming the decision of the lower appellate authority.