2006 (7) TMI 7 - SC - Central Excise

Rule 57C mandates denial of Cenvat/Modvat credit when final product is wholly exempt or nil duty

AMRIT PAPER Versus COMMISSIONER OF CENTRAL EXCISE, LUDHIANA

SC held that Rule 57C prevails over the appellant's interpretation of the exemption notification and must be applied mandatorily: no Cenvat/Modvat credit ... Cenvat/Modvat credit - benefit of exemption notification - Application of Rule 57C - HELD THAT:- As rightly submitted by learned counsel for the respondent the provisions of Rule 57C would be rendered nugatory and redundant if the interpretation as suggested by learned counsel for the appellant is accepted. It would mean that primacy has to be given to the Notification over the statutory provisions contained in Rule 57C. It provides in mandatory and categorical terms that no credit of the specified duty paid on the inputs used in the manufacture of a final product (of the enumerated categories) shall be allowed if' the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. Moreover, on the facts of the case, it is found that the manufacturer had availed of the credit at the time of the clearance of the goods and had suomotu reversed it to avail the exemption later on almost after 15 months when it claimed refund of Modvat credit, hence it was not entitled to exemption. In that view of the matter, the present appeal is sans merit and is dismissed. Issues:1. Challenge to the legality of the judgment rendered by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi.2. Interpretation of the Central Excise Act, 1944 regarding exemption notifications and refund claims.3. Application of Rule 57C of the Central Excise Rules, 1944 in determining entitlement to exemption from duty payment.4. Reversal of Modvat credit and its impact on claiming exemption benefits.5. Analysis of relevant case laws and their applicability to the present case.Issue 1: The appeal filed under Section 35L of the Central Excise Act, 1944 challenges the legality of the judgment by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi. The appellant, engaged in the manufacture of paper and paperboard, sought exemption from duty payment under Notification No. 6/2000-CE dated 1-3-2000. The Tribunal dismissed the appeal, leading to the challenge before the Supreme Court.Issue 2: The appellant reversed Modvat credit to avail the exemption but faced rejection of the refund claim by the Assistant Commissioner. The dispute centered around whether the appellant, having availed credit and cleared goods under the exemption notification, was entitled to claim refund of duty paid subsequently. The appellant argued for entitlement based on a previous court decision, while the Revenue contended that availing credit rendered the appellant ineligible for the exemption.Issue 3: The Tribunal held that the appellant's claim for refund was rightly rejected, emphasizing that once credit was availed and subsequently reversed, claiming exemption was not permissible. The appellant argued that the entitlement to exemption was not dependent on availing Modvat credit under Rule 57A of the Rules, citing specific conditions in the notification.Issue 4: The appellant relied on the Orissa Extrusions case to support their claim for exemption despite reversing the credit. However, the Tribunal ruled against the appellant, stating that once the appellant claimed and received a refund, they could not seek exemption from duty payment again. The court emphasized the significance of complying with Rule 57C in determining credit eligibility.Issue 5: The court analyzed conflicting decisions in Orissa Extrusions and Ichalkaranji cases to determine the correct legal position. The court highlighted the importance of Rule 57C, stating that no credit shall be allowed if the final product is exempt from duty. The court dismissed the appeal, concluding that the appellant was not entitled to exemption due to availing and reversing credit, in line with the principles outlined in the Ichalkaranji case.This comprehensive analysis covers the key legal issues and interpretations presented in the judgment, addressing the complexities of exemption notifications, credit reversals, and the application of relevant legal provisions and precedents.