2005 (8) TMI 109 - AT - Central Excise

In terms of Not. 10/02, appellant was availing the concessional rate of duty, subject to the condition that no credit of duty paid on the inputs and capital goods was being availed - condition in the Notification No. 10/2002 providing that no credit of duty paid on inputs would be taken by the assessees was in existence up to 1-3-2003 - Claim for credit on inputs in stock, in process and inputs contained in finished goods lying in stock on 1.3.2003, is not allowable for period prior to 1.3.03

Summary

Issues:
Interpretation of Rule 9 of Cenvat Credit Rules 2002 regarding availing Cenvat credit on inputs in stock as of a specific date.

Analysis:
The judgment involves three appeals with a common issue regarding the availability of Cenvat credit on inputs in stock as of a specific date. The appellants, engaged in manufacturing Tooth Brushes falling under Chapter 96, were initially availing a concessional rate of duty under Notification No. 10/02-C.E., dated 1-3-2002, without taking credit of duty paid on inputs and capital goods. Subsequently, the condition was removed by Notification No. 10/2003-C.E., dated 1-3-2003, allowing the appellants to avail Cenvat credit. The dispute centered around whether the appellants were entitled to Cenvat credit on inputs in stock as of 1-3-2003, based on Rule 9 of the Cenvat Credit Rules 2002.

The Revenue contended that Rule 9, a transitional provision, allowed for availing Cenvat credit on inputs in stock when exempted final products become dutiable. However, the judge observed that the condition restricting credit of duty paid on inputs was removed on 1-3-2003, making the appellants eligible for Cenvat credit. Since the rate of duty on the final product remained the same, the appellants were entitled to avail Modvat credit for inputs received after 1-3-2003.

The appellants referenced Rule 9 of the Cenvat Credit Rules 2002, which the judge found inapplicable as there was no credit earned by the appellants before 1-3-2003. Additionally, Rule 3(2) allowed Cenvat credit when goods cease to be exempted or become excisable. The judge determined that the toothbrushes were not exempted goods before 1-3-2003 and continued to attract the same duty rate afterward. Therefore, denying Modvat credit for inputs in stock as of 1-3-2003 was justified as it would amount to giving retrospective effect to the removal of the credit restriction.

Ultimately, the judge rejected all appeals but set aside the penalty imposed on the appellants due to the bona fide interpretation of the Modvat rules. The judgment clarified the applicability of Rule 9 and Rule 3(2) in determining the eligibility for Cenvat credit on inputs in stock as of a specific date, emphasizing the importance of the timing of regulatory changes in availing such credits.