2009 (11) TMI 463 - AT - Central Excise

Cenvat Credit - the appellants had received welding electrodes and availed input credit under rule 3 of Cenvat Credit Rules, 2004. These electrodes were used for repairing machinery within the factory. The demand is on the basis that the appellants had removed the inputs without reversing the credit availed. Held that - the inputs received were used for repair of the machinery installed in the factory of the appellants. It is not the revenue s case that the appellants had availed inadmissible credit. Find that the inputs were not removed outside the factory. In the circumstances, rule 3(5) could not be validly invoked. Accordingly, set aside the impugned order and allow these appeals.

Summary

Issues:
1. Confirmation of orders by the Commissioner (Appeals) regarding duty and penalty.
2. Appellant seeking waiver of pre-deposit for hearing the appeals.
3. Dispute over the application of Rule 3(5) of the Cenvat Credit Rules.
4. Argument regarding recovery of input costs from the contractor affecting Cenvat credit eligibility.

Analysis:
1. The Commissioner (Appeals) confirmed two orders of the original authority regarding duty and penalty. The appellant sought waiver of pre-deposit for hearing the appeals. The appeals were taken up for disposal without further hearing. The dispute arose from the appellant receiving welding electrodes and availing input credit under Rule 3 of Cenvat Credit Rules, 2004, for repairing machinery within the factory. The demand was based on the alleged removal of inputs without reversing the credit availed, which the Commissioner (Appeals) upheld.

2. The appellant argued that the transactions did not fall under Rule 3(5) of the Cenvat Credit Rules, which applies when inputs are removed outside the factory. In this case, the inputs were used for manufacturing finished goods within the factory, and hence, the demands of credit and penalty were deemed unsustainable. The learned JDR contended that since the appellant recovered the input costs from the contractor, they were not entitled to avail Cenvat credit.

3. Upon perusing the records and considering the submissions, the technical member noted that Rule 3(5) of Cenvat Credit Rules, 2004, was invoked for the demand. However, it was found that the inputs received were utilized for repairing machinery within the appellant's factory, not removed outside. As there was no evidence of availing inadmissible credit, Rule 3(5) could not be validly applied. Consequently, the impugned order was set aside, and the appeals were allowed in favor of the appellant.