Court sets aside orders, remands for input credit determination. Interest due for shortfall period.

The Court allowed the appeal, setting aside previous orders, and remanded the matter to determine the availability of utilizable input credit. If input credit was available, no interest would be payable; if there was a shortfall, interest would be due for the default period. The Court rejected the request to exempt the appellant from paying interest during the appeal period.

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Issues:
- Whether Cenvat credit on inputs used as fuel for manufacturing exempted final products is allowed under Rule 57D of Central Excise Rules, 1994 and Rule 6 of Cenvat Credit Rules, 2001/2002.

Detailed Analysis:

Issue 1: Cenvat Credit on Inputs Used as Fuel for Exempted Products
The case involves an appeal under Section 35G of the Central Excise Act, 1944 arising from orders issued by the Commissioner of Customs and Central Excise (Appeals) and the Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Bangalore. The respondent, engaged in manufacturing dutiable and non-dutiable goods, availed CENVAT credit on furnace oil/LSHS. The Deputy Commissioner held that inputs used as fuel are excluded from CENVAT credit rules, leading to a demand of Rs. 16,98,13,555/- along with interest. The respondent appealed, and the appellate authority allowed the appeal based on a previous Tribunal decision. The Customs, Excise & Service Tax Appellate Tribunal upheld this decision. The main issue was whether CENVAT credit on inputs used as fuel for exempted products is permissible under the relevant rules.

Issue 2: Interpretation of Applicable Rules
During the hearing, both parties agreed that a Supreme Court decision clarified that CENVAT credit for duty paid on inputs used in manufacturing exempted final products is not allowed. The appellant argued that the appeal should be allowed based on this precedent. However, the respondent cited a Division Bench decision suggesting that if utilizable CENVAT credit was available during the relevant period, the liability to pay interest should be limited to any shortfall in input credit. The Court decided to remand the matter to the original authority to determine the availability of utilizable input credit during the relevant period. If input credit was available, the respondent would not be liable to pay interest, as it would be a belated adjustment of duty credit. If there was a shortfall, the respondent would be liable to pay interest for the default period.

Conclusion
The Court allowed the appeal, setting aside the previous orders, and remanded the matter to the original authority to determine the availability of utilizable input credit. The Court emphasized that if input credit was available, no interest would be payable, but if there was a shortfall, interest would be due for the default period. The Court rejected the request to exempt the appellant from paying interest during the appeal period.

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