2002 (8) TMI 485 - AT - Central Excise

Job workers' failure to meet exemption requirements results in disallowance of Cenvat credit

The Commissioner (Appeals) upheld the disallowance of Cenvat credit to the appellants for duty paid on inputs used by job workers, as the job workers did ... Stay/Dispensation of pre-deposit - Modvat/Cenvat Issues:1. Admissibility of Cenvat credit on duty paid by the manufacturer on inputs used by job workers.2. Applicability of exemption under Notf. No. 214/86-C.E. for availing Cenvat credit.3. Interpretation of Rule 57AB of Central Excise Rules, 1944 in relation to job workers.4. Pre-deposit requirement in the context of Cenvat credit disallowance.Issue 1: Admissibility of Cenvat credit on duty paid by the manufacturer on inputs used by job workers:The appellants purchased nylon filament yarn and sent it to job workers for manufacturing knitted fabrics, which were further used to manufacture laminated fabrics. They availed Cenvat credit on the duty paid by the yarn supplier. However, a show cause notice alleged that since the job workers did not avail the exemption under Notf. No. 214/86-C.E., the Cenvat credit under Rule 57AB(1) was not admissible. The Assistant Commissioner disallowed the credit, leading to an appeal that was rejected by the Commissioner (Appeals).Issue 2: Applicability of exemption under Notf. No. 214/86-C.E. for availing Cenvat credit:The appellants argued that the job workers were not required to avail the exemption under Notf. No. 214/86-C.E., as they were already exempt under Notf. No. 6/2000-C.E. The appellants relied on a Tribunal decision and a Board's instruction to support their claim. However, the Revenue relied on a Supreme Court judgment emphasizing the importance of following pre-conditions for exemption entitlement. The Tribunal held that the job workers not availing the required exemption precluded the appellants from claiming Cenvat credit under Rule 57AB(1).Issue 3: Interpretation of Rule 57AB of Central Excise Rules, 1944 in relation to job workers:The Tribunal analyzed various legal precedents, including Supreme Court judgments, to establish that adherence to essential pre-conditions, such as availing specified exemptions, was crucial for claiming benefits under Rule 57AB(1). The Tribunal emphasized that failure to meet such pre-conditions rendered the facility under the provisions unavailable to the claimant, as highlighted in the cited legal authorities.Issue 4: Pre-deposit requirement in the context of Cenvat credit disallowance:Considering the legal position established by the Supreme Court judgments and the lack of a prima facie case in favor of the appellants, the Tribunal directed them to make a pre-deposit of the disallowed Cenvat credit amount. The appellants were instructed to comply with the pre-deposit requirement by a specified date, failing which the matter would be revisited for compliance verification.This detailed analysis of the judgment highlights the key legal issues surrounding the admissibility of Cenvat credit, the significance of complying with specified exemptions, and the Tribunal's decision regarding the pre-deposit requirement in the context of Cenvat credit disallowance.