2025 (1) TMI 1148 - AT - Central Excise

Manufacturer entitled to exemption under N/N. 67/1995-CE for intermediary product used in leather production

CESTAT NEW DELHI allowed the appeal regarding exemption under N/N. 67/1995-CE for intermediary product season manufactured and captively used by appellant ... Benefit of exemption under N/N. 67/1995-CE dated 16.03.1995 - process amounting to manufacture or not - activity of preparation of ‘season’ - product has a shelf life and is marketable - appellant is engaged in the manufacture of finished leather - discharge of obligation in terms of Rule 6 of the CCR, 2001 by appellant or not - Whether the intermediary product ‘season’ manufactured and captively used by the appellant is eligible for the benefit of exemption under N/N. 67/1995? HELD THAT:- The appellant is engaged in the manufacture and clearance of the goods both dutiable and exempted. From the contents of the notification it is also found that the intermediary product ‘season’ prepared in the factory of the appellant is covered under Column (1) of the Table and is used in or in relation to the manufacture of both types of final products covered under Column (2) of the Table of the notification. It is also an undisputed position that the appellant had not availed the Cenvat Credit of duty or tax paid on any inputs or input services or capital goods which were used in the manufacture of both exempted and dutiable goods. The fact that the appellant has not availed the Cenvat Credit shows that they had discharged the obligation as prescribed under Rule 6 of the Rules. In arriving at the conclusion, that the appellant had discharged the obligation in terms of Rule 6 as no Cenvat Credit was availed, we are supported by the decisions as referred to by the learned Counsel for the appellant. In the case of AMBUJA CEMENT LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH [2015 (11) TMI 1413 - SUPREME COURT], the Apex Court considered the issue relating to the interpretation of the exemption notification no. 67/1995 with reference to the dutiability of the intermediary product ‘clinker’ obtained at the intermediary stage in the production of ‘cement’, which is exempted from the excise duty under the exemption notification no. 50/2003 dated 10.06.2003. The Apex Court, inter-alia observed 'The final products may be made out of the same product or out of different products. Clause (vi) does not contemplates that the manufacturer should manufacture only ‘one final product’ or that if he manufacturers 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.' In the case of M/S. FUNSKOOL (INDIA) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & CUSTOMS, GOA [2016 (12) TMI 1267 - CESTAT MUMBAI] the adjudicating authority had denied the exemption under notification no. 67/1995 in respect of packing boxes used captively for manufacture of exempted goods on the ground that the appellant have not discharged the obligation as provided under Rule 6 of the CCR, 2001. In this context, the Tribunal noticed that the appellant therein had not availed the Cenvat Credit in respect of any of the inputs used either in the final product or in the intermediate product, i.e. packing boxes and therefore, concluded that the obligation in terms of Rule 6(1) stood discharged and they were entitled to the benefit of the exemption N/N. 67/195. Similar observations have been made in SPRAY KING AGRO EQUIPMENT PVT LTD AND HITESH P DUDHAGRA VERSUS C.C.E. & S.T. -RAJKOT [2022 (5) TMI 564 - CESTAT AHMEDABAD] that exemption under notification is available to the intermediary goods even if the final product is exempted, provided the assessee discharges the obligation prescribed under Rule 6 of the CCR, 2001. In the context, it was observed that the appellant during the impugned period was not registered with the Central Excise Department, hence, has not availed the Cenvat Credit in respect of any of the inputs used either in the final product or in the intermediate product i.e. Brass and therefore, the condition of sub-rule (1) of Rule 6 stands complied with. Conclusion - Since the appellant herein had not availed the Cenvat Credit, they had discharged the obligation under Rule 6(1) and were therefore, entitled to the benefit of the exemption notification no. 67/1995. Appeal allowed. Issues Presented and ConsideredThe primary issue in this case is whether the intermediary product 'season,' manufactured and captively used by the appellant, is eligible for the benefit of exemption under Notification No. 67/1995. This involves determining whether the appellant has discharged the obligation under Rule 6 of the Cenvat Credit Rules, 2001 (CCR), which would allow the exemption to apply even when the final product is exempt from duty.Issue-wise Detailed AnalysisRelevant Legal Framework and PrecedentsThe legal framework revolves around Notification No. 67/1995-CE, which provides an exemption from excise duty for inputs manufactured and used within the factory for the production of final products. The proviso to this notification states that the exemption does not apply to inputs used in the manufacture of exempted goods unless the manufacturer of both dutiable and exempted final products discharges obligations under Rule 6 of the CCR, 2001. Rule 6 mandates that Cenvat Credit shall not be availed on inputs used in exempt goods unless specific conditions are met.The appellant relied on several precedents, including the Supreme Court's decision in Ambuja Cement Ltd. vs. CCE, Chandigarh, and various Tribunal decisions, which interpreted the application of Notification No. 67/1995 and Rule 6 of the CCR, 2001.Court's Interpretation and ReasoningThe Tribunal examined whether the appellant had complied with Rule 6 of the CCR, 2001, which would allow them to benefit from the exemption despite producing exempt final products. The Tribunal noted that the appellant did not avail of Cenvat Credit on inputs used in the manufacture of both dutiable and exempt goods, thereby fulfilling the obligation under Rule 6(1). The Tribunal referred to precedents where similar interpretations were made, emphasizing that the obligation under Rule 6(1) is discharged when no Cenvat Credit is availed.Key Evidence and FindingsThe Tribunal found that the appellant did not avail Cenvat Credit, which was crucial to determining compliance with Rule 6. This fact was undisputed and supported by the appellant's records and arguments. The Tribunal also noted that the intermediary product 'season' was used in the manufacture of both dutiable and exempt final products, aligning with the conditions of Notification No. 67/1995.Application of Law to FactsApplying the law, the Tribunal concluded that since the appellant did not avail Cenvat Credit, they complied with Rule 6(1) of the CCR, 2001. Consequently, the intermediary product 'season' was eligible for exemption under Notification No. 67/1995, as the appellant produced both dutiable and exempt final products and had discharged the necessary obligations.Treatment of Competing ArgumentsThe Tribunal addressed the Department's argument that the intermediary product was subject to excise duty due to its marketability and the appellant's manufacture of exempt final products. However, the Tribunal found that the appellant's compliance with Rule 6(1) negated this argument, as the exemption under Notification No. 67/1995 applied.ConclusionsThe Tribunal concluded that the appellant was entitled to the exemption under Notification No. 67/1995, as they had discharged the obligations under Rule 6(1) by not availing Cenvat Credit. Therefore, the demand for excise duty on the intermediary product 'season' was not justified.Significant HoldingsThe Tribunal established that the exemption under Notification No. 67/1995 applies when a manufacturer does not avail Cenvat Credit on inputs used in exempt goods, thereby complying with Rule 6(1) of the CCR, 2001. The Tribunal's decision was based on the interpretation that the obligation under Rule 6(1) is fulfilled by not availing Cenvat Credit, allowing the exemption to apply even if the final product is exempt from duty.The Tribunal set aside the impugned orders, allowing the appeals with consequential benefits. This decision reinforces the application of Notification No. 67/1995 and Rule 6 of the CCR, 2001, in cases where manufacturers produce both dutiable and exempt final products without availing Cenvat Credit.