By TIOL News Service

MUMBAI, DEC 20, 2016: THE Commissioner (Appeals) upheld the denial of eligibility to notification 14/2002-CE which provides exemption to woven fabrics cleared by the appellant on the ground that condition of non-availment of CENVAT credit on inputs and capital goods had not been complied with.

It was alleged that credit of duty had been availed on cotton yarn and on other inputs such as fuels, lubricants, sizing material, packing material etc. Nonetheless, the appellant had reversed the credit taken on yarn at the time of clearance of the finished goods and reversed other credits, except on fuel and lubricants in lumpsum at the end of each month.

Before the CESTAT, the appellant submitted that they had taken recourse to rule 6(3) of CCR which allows taking of CENVAT Credit only to the extent that inputs are used for manufacture of dutiable goods. That credit was availed on yarn as and when procured but the duty credit so taken was paid back whenever exempted goods were cleared. On other inputs, except lubricant and fuel, credit is reversed regularly on lumpsum basis at the end of the month.

The Bench observed –

++ The principle laid down by the Hon'ble Supreme Court in re Chandrapur Magnet Wires (P) Ltd - 2002-TIOL-41-SC-CX has been subject to hair-splitting in the impugned order. The decision makes it clear that as long as the credit is not retained for utilization at a later stage the condition of non-availment of credit has been complied with . Accordingly, we hold that the finding against the appellant merely on the ground of lumpsum reversals at the end of each month is not sustainable.

++ Fuel and lubricants are consumables; their use does not bear any proportion with the quantum of production but are required for the running of the equipment when there is no production. At the same time, these are necessary in the manufacturing process. As pointed out on behalf of appellant, rule 6 of CENVAT Credit Rules makes a specific exclusion for fuels from the obligation to be proportionately reversed when manufacturing dutiable and exempted goods.

Holding that the appellant has complied with the conditions of non-availment of CENVAT Credit and is, therefore, eligible for the exemption, the appeal was allowed.

(See 2016-TIOL-3270-CESTAT-MUM)