Cenvat credit denial for texturiser fails where manufacturer also undertakes twisting and the independent-texturiser premise is not proved.

Credit under Notification No. 6/2000-C.E. and Rule 57AB(2)(c) could not be denied on the footing that the manufacturer was an independent texturiser, because the record also showed licensing and activity as a twister. On that factual basis, the bar on Cenvat credit applied only to a manufacturer engaged solely in texturising without facility to manufacture POY, and that premise was not established. The duty paid on twisted yarn was treated as reversal of the credit taken on POY, so the separate demand under Rule 57H(7A) also failed. Penalty under Section 11AC was not warranted because the notice had not invoked the extended period under Section 11A(1).

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Issues: Whether the appellants, who manufactured textured yarn and twisted yarn, were to be treated as independent texturisers so as to deny Cenvat credit on POY and sustain the demand of duty and penalty.

Analysis: The registration certificate did not conclusively establish that the appellants were only independent texturisers. The record showed that they were also licensed as twisters and were engaged in manufacture of twisted yarn as well. On a plain reading of Notification No. 6/2000-C.E. and Rule 57AB(2)(c) of the Central Excise Rules, the bar on credit applied to a manufacturer engaged only in texturising and lacking facility for manufacture of POY. Since the appellants were also carrying on twisting, the factual premise adopted by the Department was unsustainable. The duty paid on twisted yarn was treated as reflecting reversal of the credit taken on POY, and the separate demand based on Rule 57H(7A) also could not survive. Penalty under Section 11AC was not warranted because the notice had not invoked the extended period under Section 11A(1).

Conclusion: The appellants were not to be treated as independent texturisers for the purpose of denying credit, and the demands of duty and penalty were unsustainable.

Ratio Decidendi: Credit cannot be denied under the texturiser-based exemption restriction where the manufacturer is also engaged in twisting and the factual foundation for treating it as an independent texturiser is not established.

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