Cenvat credit on furnace oil for exempted goods led to conditional pre-deposit, with total waiver refused.

Cenvat credit on furnace oil used in manufacturing exempted goods was examined in the context of a request for waiver of pre-deposit. The fuel-related exception in Rule 6(2) of the Cenvat Credit Rules, 2001 was relied upon, but the relevant restriction was considered to lie in Rule 6(1), which bars credit on input used for exempted goods. On that prima facie view, total waiver was not justified. Partial interim relief was granted by directing a conditional deposit of duty, with the balance duty and penalty stayed pending the appeal.

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Issues: Whether the applicant was entitled to waiver of pre-deposit in respect of duty and penalty demand arising from denial of Cenvat credit on furnace oil used in the manufacture of exempted goods.

Analysis: The application arose from disallowance of Cenvat credit on fuel used in manufacturing exempted goods. The contention was that the fuel-related exception in Rule 6(2) of the Cenvat Credit Rules, 2001 protected the claim. On a prima facie view, the relevant restriction was found in Rule 6(1), which bars credit on the quantity of input used in the manufacture of exempted goods. In that view, a strong prima facie case for total waiver was not made out, though partial relief by way of conditional deposit was warranted.

Conclusion: Total waiver of pre-deposit was declined. The applicant was directed to deposit Rs. 5 lakhs towards duty, and on such deposit the balance duty and penalty were stayed pending the appeal.

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