Manufacturer entitled to Cenvat credit for capital goods despite 4% duty choice

The Tribunal held that the appellant, a manufacturer of Yarn, was eligible for Cenvat credit on capital goods used for manufacturing exempted goods under Notification No. 29/2004-C.E. and Notification No. 30/2004-C.E. The appellant's choice to pay 4% duty under one notification did not render them ineligible for capital goods Cenvat credit. The Tribunal found in favor of the appellant, setting aside the Department's demand for wrongly availed capital goods amount and penalties, allowing the appeal.

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Issues involved:
Interpretation of Notification No. 29/2004-C.E. and Notification No. 30/2004-C.E. regarding duty exemptions and input duty credit availed by manufacturers of Yarn. Admissibility of Cenvat credit on capital goods used for manufacturing exempted goods.

Analysis:
During the period in question, the appellant, a manufacturer of Yarn, availed exemptions under Notification No. 29/2004-C.E. and Notification No. 30/2004-C.E. The dispute arose as the Department contended that since the appellant did not avail input duty credit for goods cleared under Notification No. 29/2004-C.E. at 4% duty for exports, they should have opted for full duty exemption under Notification No. 30/2004-C.E. The Department argued that any duty paid under Notification No. 29/2004-C.E. should be treated as a deposit, and the goods cleared as fully exempted under Notification No. 30/2004-C.E., making the appellant ineligible for capital goods Cenvat credit. The Deputy Commissioner upheld the demand for wrongly availed capital goods amount and imposed penalties. The Commissioner (Appeals) also ruled in favor of the Department, leading to the appeal.

The appellant argued that they had not availed input duty credit for either type of clearances and had only availed capital goods Cenvat credit, which was not prohibited under Notification No. 30/2004-C.E. They contended that since Notification No. 29/2004-C.E. had no conditions for availing the concessional rate of 4% duty, they were not obligated to opt for full duty exemption under Notification No. 30/2004-C.E. The appellant further argued that the capital goods were not exclusively used for manufacturing exempted goods, so Rule 6(4) of Cenvat Credit Rules, 2004 should not be applicable, and thus, Cenvat credit should not be denied on these capital goods.

The Department opposed the appellant's contentions, emphasizing that the clearances under Notification No. 29/2004-C.E. at 4% duty were actually of exempted goods and should be treated as such under Notification No. 30/2004-C.E. They argued that once an assessee is eligible for full duty exemption, they cannot choose to pay duty, making the goods ineligible for capital goods Cenvat credit.

The Tribunal analyzed the submissions and records, concluding that the appellant, by not availing input duty credit, had the option to pay 4% duty under Notification No. 29/2004-C.E. The Tribunal found the Department's contention incorrect, stating that the appellant had the right to choose the most beneficial exemption. As the appellant had cleared goods under both exemptions, the capital goods could not be considered exclusively used for manufacturing exempted goods, making them eligible for Cenvat credit. Therefore, the impugned order was set aside, and the appeal was allowed.

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