2012 (12) TMI 883 - AT - Central Excise

Tribunal Stay: Cenvat Credit Dispute Resolved with Legal Precedents

The Tribunal granted a stay on the recovery of cenvat credit demand, interest, and penalties, considering the appellant's strong prima facie case ... Duty exemption under notification no.214/86-CE denied- Cenvat credit in relation to manufacture of polyester chips on job work basis - Held that:- Duty exemption under notification no.214/86-CE to the job worker is available on the undertaking given by the principal manufacturer that he will discharge the duty liability on the final product cleared from his factory. Tribunal in the case of Sterlite Industries (I) Ltd. (2004 (12) TMI 108 - CESTAT, MUMBAI) and the Apex Court in the case of M/s. Escorts Ltd. (2004 (8) TMI 106 - SUPREME COURT OF INDIA) have held that if any manufacturer of certain goods on job work basis, uses his own inputs, the job worker would be entitled to cenvat credit in respect of these inputs and he would not be liable to reverse the same even though the goods have been cleared to the principal manufacturer without payment of duty under notification no.214/86-CE. The ratio of these judgements is squarely applicable to the facts of this case and the appellant appear to be eligible for cenvat credit of the service tax paid on the input service availed in or in relation to the manufacture of the polyester chips on job work basis, which had been cleared to the principal manufacturer without payment of duty under notification no.214/86-CE, hence the requirement of pre-deposit of cenvat credit demand, interest and penalty is waived - Stay allowed. Issues:- Dispute over cenvat credit availed on input services used in the manufacture of polyester chips on job work basis.- Interpretation of exemption notification no.214/86-CE and its impact on cenvat credit eligibility.- Applicability of Cenvat Credit Rules, 2004 in the disputed scenario.Issue 1: Cenvat Credit DisputeThe appellant availed cenvat credit on input services used in manufacturing polyester chips on job work basis. The dispute arose as the finished goods, polyester chips, were cleared without duty payment under an exemption notification. The department issued show cause notices for recovery of allegedly wrongly taken cenvat credit. The Addl. Commissioner confirmed a significant cenvat credit demand, along with interest and penalties, which was upheld by the Commissioner (Appeals). The appellant challenged this decision in the present appeal.Issue 2: Exemption Notification InterpretationThe Commissioner (Appeals) held that since the polyester chips were cleared under an exemption notification no.214/86-CE, they were considered exempted goods. Consequently, cenvat credit for input services used in manufacturing these chips was deemed inadmissible under Rule 6(1) of the Cenvat Credit Rules, 2004. This interpretation formed the basis of the department's contention against the appellant's eligibility for cenvat credit.Issue 3: Applicability of PrecedentsThe appellant argued that based on precedents like the case of Sterlite Industries (I) Ltd. vs. CCE, Pune and the decision of the Hon'ble Bombay High Court in a related matter, they should be entitled to cenvat credit for the input services used in manufacturing the polyester chips. These precedents established that a job worker could claim credit for inputs used, even if the finished goods were cleared without duty payment. The Tribunal found these judgments applicable to the current case, supporting the appellant's claim for cenvat credit.In conclusion, the Tribunal granted a stay on the recovery of cenvat credit demand, interest, and penalties, considering the appellant's strong prima facie case supported by relevant legal precedents. The dispute centered on the eligibility of cenvat credit in a scenario where finished goods were cleared without duty payment under an exemption notification. The Tribunal's decision highlighted the importance of interpreting exemption notifications and applying established legal principles to determine cenvat credit eligibility in such cases.