Commissioner of Central Excise vs S.T. Cottex Exports (P.) Ltd.

Adarsh Kumar Goel, J.—This appeal has been preferred by the Assessee u/s 35G of the Central Excise Act, 1944 against order dated 18-1-2010 passed by the Customs, Excise & Service Tax Appellate Tribunal, New Delhi (for short ''the Tribunal'') seeking to raise the following substantial questions of law:-

(i) Whether the Hon''ble Tribunal is right in upholding admissibility of CENVAT credit taken on capital goods, at the time of receipt of which, the final product was exempted from payment of duty and thus, such capital goods exclusively used in the manufacture of exempted goods exempted vide Notification No. 30/2004-CE, dated 9-7-2004 during material period, in spite of clear provisions of Rule 6(4) of the Cenvat Credit Rules, 2004 not allowing CENVAT credit on such capital goods used exclusively in the manufacture of exempted goods?

(ii) Whether the Hon''ble Tribunal is right in taking a far stretched view of ''exempted goods'' by bringing in the concept of conditional and unconditional exemption far beyond the scope of definition of ''exempted goods'' as specifically provided under Rule 2(d) of the CENVAT Credit Rules, 2004 itself?

The 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-CE, dated 9-7-2004, it claimed CENVAT credit on capital goods used in the manufacturing. The amount involved was Rs. 75,798. The adjudicating authority after issuance of notice 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 by the Assessee, the Tribunal set aside the same, 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-CE, dated 9-7-2004, 4 per cent duty was payable on the manufactured goods.

We have heard learned Counsel for the Appellant.

Learned Counsel for the Appellant 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 2003 (109) ECR 403 which was upheld by the Supreme Court. 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.

We are unable to accept the submission. Present is not a case of subsequent withdrawal of exemption as in the case of Surya Roshni Ltd. (supra). 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. The finding is as under:-

I have carefully considered the submission from both sides and perused the records. Capital goods, in question, had been received during January, 2005 to March, 2005 and at that time the goods manufactured by using those capital goods cotton yarn had been cleared by availing full duty exemption under Notification No. 30/2004-CE. However, from June, 2005 onward, the Appellants started available benefit of Notification No. 29/04-CE in respect of their clearance for export where there is optional rate of duty of 4 per cent and there is no dispute about the fact that Notification Nos. 29/04-CE and 30/04-CE were being available during the same period simultaneously. In view of this position, it cannot be said that the capital goods, in question, had been used exclusively for the manufacture of fully exempted finished products. 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. But it is not so in this case. In the case of Surya Roshni Ltd. (supra) relied upon by the Commissioner (Appeals), the finished products at the time of receipt of capital goods were fully and unconditionally exempt from duty while it is not so in this case as in this case while Notification No. 30/04-CE provides full duty exemption subject to the condition that no input duty credit has been taken, Notification No. 29/04-CE issued on the same date provides optional rate of duty of 4 per cent adv without any condition. Therefore, the ratio of Tribunal''s judgment in the case of Surya Roshni Ltd (supra) is not applicable to the facts of this case.

In view of finding of the Tribunal that the Assessee availed benefit of notification under which 4 per cent duty was payable, it cannot be held that Assessee used the capital goods in manufacture of exempted goods in which case the Assessee could not claim the benefit of CENVAT credit under Rule 6(4). No substantial question of law arises.

Accordingly, the appeal is dismissed.