Manufacturer wins appeal for Cenvat credit on slag used as input

The Tribunal allowed the appeal filed by the appellant, a manufacturer of MS ingots, regarding the admissibility of Cenvat credit on slag used as an input. The Tribunal held that Cenvat credit cannot be denied if duty was paid on inputs, even if those inputs were exempt from duty. It was emphasized that the recipient of goods is entitled to Cenvat credit of duty paid, and the Board's Circular cannot override the provisions of the Cenvat Credit Rules, 2004. The impugned order disallowing Cenvat credit and imposing penalties was set aside, granting consequential benefits to the appellant.

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Issues Involved:
1. Admissibility of Cenvat credit on slag.
2. Applicability of Exemption Notification No. 4/2006-CE.
3. Validity of the recovery of Cenvat credit along with interest and penalty.
4. Interpretation of Rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944.
5. Relevance of Board’s Circular No. 940/01/2011-CX dated 14.01.2011.

Issue-wise Detailed Analysis:

1. Admissibility of Cenvat Credit on Slag:
The appellant, a manufacturer of MS ingots, claimed Cenvat credit on slag used as an input. The department contended that Cenvat credit on slag was inadmissible since slag was absolutely exempted under Exemption Notification No. 4/2006-CE dated 01.03.2006. The Tribunal found that this issue was not res integra, referencing multiple decisions from the Tribunal, High Courts, and the Supreme Court which established that Cenvat credit cannot be denied if duty was paid on inputs, even if those inputs were exempt from duty.

2. Applicability of Exemption Notification No. 4/2006-CE:
The department argued that under section 5A(1A), manufacturers are barred from removing absolutely exempted goods on payment of duty. However, the Tribunal noted that previous judgments, such as Hindustan Coca-Cola Beverages Pvt. Ltd. vs. CCE, Pune-III, established that once duty was paid on inputs, Cenvat credit cannot be denied on the grounds that such inputs were not liable for duty.

3. Validity of the Recovery of Cenvat Credit along with Interest and Penalty:
The adjudicating authority disallowed the Cenvat credit amounting to Rs. 27,65,702/- and ordered its recovery along with interest and imposed a penalty of an equal amount under Rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944. The Tribunal, however, found that the lower appellate authority's decision to uphold the order-in-original was incorrect, as established by the precedent cases which indicated that the recipient of goods is not required to determine whether the duty was payable on the inputs.

4. Interpretation of Rule 15(2) of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944:
The Tribunal referenced the case of Neuland Laboratories Ltd. vs. CCE, Hyderabad-I, which clarified that the receiver of goods is eligible to take Cenvat credit of duty paid and is not required to determine whether the duty was payable. This interpretation was crucial in setting aside the penalty imposed under Rule 15(2) and section 11AC.

5. Relevance of Board’s Circular No. 940/01/2011-CX dated 14.01.2011:
The department cited the Board’s Circular to argue that Cenvat credit should be recovered when duty was paid on exempted goods. However, the Tribunal, referencing the case of CCE, Chennai-I vs. CEGAT, Chennai, held that there is no provision in the Cenvat Credit Rules, 2004, obligating the receiver of goods to ascertain whether duty was payable by the manufacturer supplier. The Tribunal concluded that the Board’s Circular cannot be applied blindly to deny Cenvat credit.

Conclusion:
The Tribunal found that the facts of the present case were squarely covered by the cited judgments and held that the impugned order could not be sustained. Consequently, the appeal filed by the appellant was allowed with consequential benefits as per law. The Tribunal emphasized that the recipient of goods is entitled to Cenvat credit of duty paid, irrespective of whether the inputs were exempt from duty, and that the Board’s Circular does not override the provisions of the Cenvat Credit Rules, 2004. The order was pronounced in the open court on 17 March 2020.

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