2017 (11) TMI 1248 - AT - Central Excise

CESTAT Chennai: Central Excise duty exemption upheld for intermediate goods used in manufacturing

The Appellate Tribunal CESTAT Chennai ruled in favor of the appellants in a dispute concerning the liability of Central Excise duty on intermediate goods ... N/N. 67/1995-CE, dated 16.03.1995 - intermediate goods - captive consumption - processed fabrics (intermediate goods) used in the manufacture of exempted final products [Knitted Garments] cleared/availing SSI exemption - Held that: - In a similar situation, the exemption available to cement clinker used in the manufacture of cement, which was cleared without payment of duty availing area-based exemption was the subject-matter of discussion by the Hon'ble Supreme Court in the case of M/s. Ambuja Cements Ltd. [2015 (11) TMI 1413 - SUPREME COURT]. It was held in the case that There may be different final products manufactured by the same manufacturer. The final products may be made out of the same product or out of different products. Clause (vi) does not contemplate that the manufacturer should manufacture only ‘one final product’ or that if he manufactures only one product that product itself should be both dutiable and exempted. The basis adopted by the CESTAT that the ‘same final product’ should be partly dutiable and partly exempt, is neither a requirement of clause (vi) nor a requirement of Rule 6. The exemption available to intermediate products in the present case cannot be denied - appeal allowed - decided in favor of appellant. Issues:Liability of appellants to Central Excise duty on intermediate goods used in the manufacture of final products.Analysis:The 16 appeals before the Appellate Tribunal CESTAT Chennai revolve around the liability of the appellants to Central Excise duty on intermediate goods used in the manufacture of final products. The appellants, availing exemption as a small-scale industry for knitted garments, faced a dispute regarding processed fabrics not covered under the exemption. Revenue contended that since the final product, knitted garments, was exempt from duty, the exemption for processed fabrics under Notification No. 67/1995-CE did not apply. Proceedings were initiated against the appellants to demand and recover Central Excise duty on the processed fabrics, with the original authority ruling against them.In the appeal, the appellants argued that the issue of tax liability for intermediate products used in the manufacture of exempted final products had been addressed by the Supreme Court in a previous case. They cited the decision in M/s. Ambuja Cement Ltd. Vs Commissioner of Central Excise, Chandigarh, where the Supreme Court clarified the application of Rule 6 of the Cenvat Credit Rules in such scenarios. The appellants contended that the matter had been resolved in their favor based on the Supreme Court's ruling.The learned Authorised Representative, however, contested the appeals, emphasizing that the appellants had availed exemption for knitted garments under Notification No.8/2003-CE, which restricted the credit of duty on inputs. He distinguished the Supreme Court's ratio in the previous case, citing a Tribunal decision in a similar matter.Upon hearing both sides and examining the records, the Tribunal noted the duty liability of the appellants for intermediate goods used in the manufacture of exempted final products. Drawing parallels to the Supreme Court's decision in the Ambuja Cements case regarding cement clinker, the Tribunal analyzed the application of Rule 6 of the Cenvat Credit Rules and the proviso under Notification No.67/1995-CE. The Tribunal concluded that the exemption for intermediate products was available based on the legal interpretation provided by the Supreme Court.The Tribunal further highlighted that a previous Tribunal decision did not address the proviso and the legal implications discussed by the Supreme Court. By following the legal position established in the Ambuja Cements case, the Tribunal set aside the impugned orders and allowed the appeals, affirming the exemption available to the intermediate products in the present case.