2016 (11) TMI 401 - AT - Central Excise

Interpretation of input credit rules for iron ore fines upheld by Tribunal.

Commissioner of C. Ex. & S. Tax, Allahabad Versus M/s Gallant Ispat Ltd.

The case involved the interpretation of rules regarding the reversal of input credit for iron ore fines. The Commissioner (Appeals) ruled in favor of the ... Demand - Reversal of credit - Rule 3(5B) of CCR, 2004 - Penalty - the condition precedent under Rule 3(5B) of CCR, 2004 is, if the value of any inputs/goods have been written off fully or partially or where any provision to write off fully has been made in the books of accounts, in respect of value of any inputs, then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the Cenvat credit taken in respect of the said inputs - Decided in favor of the assessee. Issues Involved:1. Interpretation of Rule 3(5B) of CCR, 2004 regarding reversal of input credit for iron ore pellets and fines.2. Applicability of Rule 57D of CER, 1944 on denial of Cenvat credit.3. Assessment of whether the iron ore fines are considered as waste or inputs.4. Compliance with Circular No. 907/27/2009 CX for reversal of Cenvat credit.Analysis:1. The primary issue in this case was the interpretation of Rule 3(5B) of CCR, 2004 concerning the reversal of input credit for iron ore pellets and fines. The revenue contended that the appellant should reverse input credit as fines of less than 3 mm size were separated during the charging process in the blast furnace. However, the Commissioner (Appeals) held that since the fines were not removed or destroyed, the provisions of Rule 3(5B) were not applicable.2. The appellant argued that Rule 57D of CER, 1944 specifically stated that Cenvat credit should not be denied even if part of the input became waste or refuse. The Commissioner (Appeals) relied on this rule and the report from the assessing authority to conclude that the fines were still in the factory premises and had not been written off, thus Rule 3(5B) did not apply.3. The assessment of whether the iron ore fines should be considered as waste or inputs was crucial. The Commissioner (Appeals) referenced a previous tribunal ruling where it was held that fines separated during production were in the nature of waste and not equivalent to the clearance of inputs. It was established that the fines were generated during production and were still in the factory premises, supporting the argument that they were not written off.4. The revenue referred to Circular No. 907/27/2009 CX to support their claim that if the value of an input was written off in the books of accounts, the manufacturer should reverse the credit. However, the Tribunal found that since there was no writing off or removal of inputs, Rule 3(5B) did not apply, and the appeal of the revenue was dismissed. The respondent was entitled to consequential benefits as per the law.In conclusion, the judgment focused on the proper interpretation of the rules governing the reversal of input credit for iron ore fines, emphasizing the importance of whether the fines were considered waste or inputs and whether they were written off or removed. The decision provided clarity on the application of the relevant rules and upheld the appellant's position in this case.