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2015 (9) TMI 881 - SUPREME COURT

2015 (9) TMI 881 - SUPREME COURT - 2015 (323) E.L.T. 222 (SC) - Reversal of Credit under Rule 6 - credit taken on denatured spirit - CENVAT Credit which was already accumulated in favour of the assessee at the time when the Rules,2002 were brought into force. - Utilization of the major portion of the credit was denied to the assessee by the Adjudicating Authority invoking the provisions of Rule 6 of the Rules,2002 - Held that:- CENVAT Credit which was already earned by the assessee, could not ha .....

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A.K.SIKRI, J. The respondent (hereinafter referred to as the "assessee") had two units, one is for the manufacture of sugar and molasses and the other for distilling of denatured spirit, which is dutiable product and rectified spirit, which is non-dutiable product.The assessee had applied for grant of single licence for both the units as the distilling unit was using molasses manufactured by sugar unit, as inputs, for the manufacture of dutiable and non-dutiable products i.e. denatured .....

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t;). It would be relevant to point out here that under the CENVAT Credit Rules, 2001, the assessee was also paying duty @ 8% of the value of the exempted goods cleared by it in lieu of the CENVAT Credit availed by it on the inputs utilized in the manufacture of its goods. The duty was obviously paid on the dutiable products, namely, denatured spirit. The issue pertains to the utilization of the CENVAT Credit which was already accumulated in favour of the assessee at the time when the Rules,2002 .....

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by the assessee. Since interpretation of Rule 9 read with Rule 6 as well as Rule 3(3) of the Rules, 2002, is involved, we re-produce the relevant Rules 3(3), 6 and 9 as under: "Rule 3. CENVAT credit.- (1) xxxx (2) xxx (3) The CENVAT credit may be utilized for payment of - (a) any duty of excise on any final product; or (b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or (c) an amount equal to the CENVAT credit taken .....

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umbers 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508 (E) dated the 8th July, 1999] and 33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509 (E) dated the 8 th July, 1999], shall be utilized only for payment of duty on final products, cleared after availing of the exemption under the said notification numbers 32/99-Central Excise, dated the 8th July, 1999 and 32/99-Central Excise, dated the 8th July, 1999.] Provided also that the CENVAT credit of the duty paid on the inputs use .....

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une, 2003] shall respectively be utilized only for payment of duty on final products, in respect of which exemption under the said notifications No.39/2001-Central Excise dated the 31st July, 2001, 56/2002-Central Excise dated 14th November, 2002 and No.57/2002-Central Excise dated 14th November, 2002, and No.56/2003-Central Excise dated the 25th June, 2003 is availed." "Rule 6. Obligation of manufacturer of dutiable and exempted goods.- (1) The CENVAT credit shall not be allowed on su .....

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used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. (3) The manufacturer, opting n .....

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olls or sheets, falling within heading No.48.01 of the said First Schedule; (vi) final products falling within Chapters 50 to 63 of the said First Schedule, (vii) Naptha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity; (viii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the erstwhile Ministry of Fin .....

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AT credit attributable to inputs used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or (b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to eight per cent. of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the f .....

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ch are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. (5) The provisions of sub- rule (1), sub-rule (2), sub-rule (3) and sub-rule (4) shall not be applicable in case the exempted goods are either- i. cleared to a unit in a free trade zone; or ii. cleared to a unit in a special economic zone; or iii. cleared to a hundred per cent. export-oriented undertaking; o .....

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nder bond in terms of the provisions of the Central Excise Rules, 2002. vii. gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting." "Rule 9. Transitional provision.- (1) Any amount of credit earned by a manufacturer under the CENVAT Credit Rules, 2001, as they existed prior to the 1st day of March, 2002 and remaining unutilized on that day shall be allowable as CENVAT credit to such manufacturer under th .....

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r contained in final products lying in stock on the date when such option is exercised and after deducting the said amount from the balance, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any excisable goods, whether cleared for home consumption or for export." Argument of Shri A.K. Sanghi, learned senior counsel appearing for the Revenue, is that Rule 9, which is a transitional provision, makes it .....

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ule 2 is concerned, the case of the assessee is not covered there. This very contention was raised before the Tribunal also and the Tribunal has repelled the same in the following manner: "Rule 9 of the CENVAT Credit Rules, 2002 clearly enacts that any amount of credit earned by the manufacturer under the CENVAT Credit Rules, 2001, as they existed prior to 1st day of March, 2002, and remaining unutilized credit on the day, shall be allowable as CENVAT Credit to such manufacturer under these .....

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n-availability of the MODVAT credit to a manufacturer after the enforcement of these rules, when he is engaged in the manufacture of exempted goods also falling under heading 22.04 of the Tariff Act. From the perusal of this Rule, it is evident that under the new CENVAT Credit Rule, 2002, no credit shall be allowed to the manufacturer on such quantity of inputs which is used in the manufacturer of exempted goods and those exempted goods have been detailed in clause 3(a) of this rule.This rule no .....

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ay if the rigors of Rule 6 would be having only prospective effect. At this juncture, we would like to refer to the following observations of this Court in Collector of Central Excise, Pune Vs. Daiichi Karkaria Ltd. [1999 (112) E.L.T.353(S.C.)], wherein the significance of such CENVAT Credit in favour of the manufacturer is described : "17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the prod .....

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