2007 (12) TMI 139 - AT - Central Excise

Manufacturers win appeal for Cenvat credit on garment inputs worth Rs. 1 crore

The appellants, manufacturers of readymade garments, successfully appealed against the department's disallowance of Cenvat credit on inputs amounting to ... Credit - appellant, manufacturers of readymade garments - inputs, in respect of which credit was taken, had been purchased from depots of various manufacturers of cotton yarn & availment of credit was on the strength of depot invoices - inputs were procured from extended arms of the manufacturers thereof & credit in question was taken on the basis of invoices issued by the manufacturers’ from their depots – credit can’t be disallowed on ground of documents mere for non registration of depots Issues:Claim of Cenvat credit on inputs based on depot invoices - Validity of depot invoices for Rule 9A compliance - Disallowance of credit by department - Appeal against Commissioner's decision.Analysis:The appellants, manufacturers of readymade garments, availed Cenvat credit on inputs under Rule 9A of the Cenvat Credit Rules, 2002, amounting to over Rs. 1 crore. The department contested the credit based on depot invoices from unregistered depots of cotton yarn manufacturers. The Commissioner ordered recovery of the credit and imposed a penalty. The dispute revolved around the validity of depot invoices for Rule 9A compliance.Upon review, it was established that the appellants were entitled to claim the benefit of Rule 9A, subject to providing a written declaration and documentary evidence of duty payment on inputs. The appellants had given the required declaration, but the issue was whether they could prove duty payment. The depot invoices, although issued by unregistered depots, were found to be manufacturers' invoices under Rule 7(1)(a)(i) of the Cenvat Credit Rules, 2002. The department's contention that depots needed registration was refuted, as depots were considered extended arms of manufacturers.The appellants presented depot invoices, factory invoices, and manufacturers' certificates to prove duty payment. Despite deficiencies in the depot invoices noted by the Commissioner, the additional evidence provided by the appellants was deemed sufficient to establish duty payment. The Commissioner's dissatisfaction with the evidence was unfounded, as the documents collectively constituted strong proof of duty payment for Rule 9A compliance.The argument referencing Notification No. 36/2001-C.E. (N.T.) regarding depot registration exemption was deemed irrelevant, as the credit was based on manufacturers' invoices from their depots. Ultimately, the impugned order was set aside, and the appeal was allowed, highlighting the adequacy of the evidence presented by the appellants to support their claim for Cenvat credit on inputs.This detailed analysis of the judgment underscores the critical evaluation of the validity of depot invoices, the interpretation of relevant rules, and the sufficiency of evidence in establishing duty payment for Cenvat credit eligibility under Rule 9A of the Cenvat Credit Rules, 2002.