Admissibility of cenvat credit on capital goods- when concessional duty paid on finished goods

PJ/Case Laws/2011-12/1221

Case: Commissioner of C. Ex., Chandigarh v/s S.T. Cottex Exports Pvt. Ltd

Citation: 2011 (268) E.L.T. 318 (P & H)

Issue:-Cenvat credit on capital goods – on finished goods 4% duty paid under Notification No. 29/2004-CE – admissibility of – applicability of Rule 6 (4) of CCR, 2004

Brief Facts:- Respondent-assessee is manufacturer of cotton yarn and other items. For period from January, 2005 to March, 2005, it cleared goods. Under Notification No. 30/2004-C.E., dated 9-7-2004, it claimed Cenvat credit on capital goods used in the manufacturing.

The Adjudicating Authority confirmed the demand of duty on the ground that since the final goods were exempted, the Cenvat credit was not admissible in view of Rule 6(4) of the Cenvat Credit Rules, 2005. The order-in-original was upheld by the Appellate Authority. On further appeal, the Tribunal set aside the impugned order, holding that it was not a case of availing of Cenvat credit in respect of capital goods used in manufacture of exempted goods as by virtue of Notification No. 29/2004-C.E., dated 9-7-2004, 4% duty was payable on the manufactured goods.

Appellant’s Contention:- Revenue submits that even though Notification dated 9-7-2004 was in force, the same provided for optional duty and the assessee never invoked the said notification. In such a situation, the view of the Tribunal is against the view taken by it in CCE, Indore v. Surya Roshni Ltd.-2003 (155) E.L.T. 481 (T) which was upheld by the Supreme Court [2003 (158) E.L.T. A273 (S.C.)]. As per the said judgment, on capital goods which are exclusively used in manufacture of exempted goods, credit was not available. Subsequent withdrawal of exemption could not validate the credit wrongly taken.

Reasoning of Judgment: -The High Court held that the present case was not a case of subsequent withdrawal of exemption as in the case of Surya Roshni. Notification dated 9-7-2004 is prior to the period of January, 2005 to March, 2005. The Tribunal has held that goods were not used in manufacture of exempted goods. In view of findings of the Tribunal that the assessee availed benefit of Notification under which 4% duty was payable, it cannot be held that assessee used the capital goods in manufacture of exempted goods in which case it cannot be held that the assessee could not claim the benefit of Cenvat credit under Rule 6(4). Hence no substantial question of law arises.

Decision: - Appeal dismissed.

Comments: - Thegoods carrying less rate of duty under any notification no. can not be said to be goods exempted under the law. As per central excise exempted goods and nil rate duty goods are different. As per law nil rate of duty is also a duty. Hence in view of this, it is clear that goods carrying less rate of duty on account of notification issued can not be considered as exempted goods. Therefore, Cenvat credit will be allowed in cases where less rate of duty is prescribed in notification issued subject to condition that there is no specifically denial for the same has been mentioned in the said notification or other conditions as specified.

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PJ/Case Laws/2011-12/1221

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