This has been the sub-ject matter of several Supreme Court and Tribunal judgements and the issue is quite well settled. Even then one of the latest Tribunal judgements (CCE, vs Super Music International — 2009(164)ECR 0224 (Tri.- Delhi) shows that the Revenue has been filing revisions in the Higher Appellate Authorities without any regard for several Supreme Court judgements and Board's own circular and even applying a Rule of the Central Excise Credit Rules 2004 ina-dequately.
In this case the manuf-acturer's final product was cassette. He used the raw material namely art paper and gum base paper to make products namely inlay cards and stickers / labels which were exempted but these inlay cards and stickers/labels which were intermediate product for them were used to make their final product namely cassette on which he paid duty.
He paid the duty on the raw material namely art paper and gum base paper and took credit from the duty paid on the final product. Revenue denied the credit quoting Rule 6(1) of the Cenvat Credit Rules which is only for disallowing credit on exempted final products. But in this case these are not final product but intermediate goods used captively in the factory for making final product (cass-ette) which paid duty. Such situations are covered para 3.9 of Board's circular in CBEC's Excise Manual of Supplementary Instructions. This held that such Cenvat credit will be admissible in respect of the amount of inputs contained in any waste refuse or by-product and similarly Cenvat credit shall not be denied if the inputs are used in the intermediate product even if such intermediate is exempt from payment of duty. Board furt-her clarified that the basic idea is that Cenvat credit is admissible so long as the inputs are used in or in relat-ion to the manufacture of final product whether dire-ctly or indirectly. Inspite of such clear cut clarification by the Board, the Department went in appeal against this to the Tribunal.
There are also several Supreme Court judgements which have expounded the same view. There is an indirect Supreme Court judgement in the case of IFFCO vs. C.C.E.-1996(86)ELT 177(SC), wherein it was held that Raw Naphtha used to produce ammonia which in turn is used in off-site plants namely water treatment plant, steam generation plant, inert gas generation plant and effluent treatment plant is also eligible for exemption as per the notification no. 187/61-C.E as it does not require that Ammonia should be used directly in the manufacture of fertiliser. In the case of Escorts vs CCE, Delhi - 2004(171)ELT145(SC), the Supreme Court held that even if the tractor parts made by one unit of M/s Escorts Ltd. out of the duty paid inputs are cleared to their another unit at Nil rate of duty under exemption notification 217/86-CE for use in the manufacture of tractors, which are cleared on payment of duty, the Cenvat credit of duty on the inputs used in the manufacture of tractor parts would be available.
This shows that Revenue has filed the revision before the Tribunal (i) without reading the Rule 6(1) by itself as this is the only consideration , (ii) without any regard to the CBEC circular itself and above all (iii) without regard to any of the Supreme Court and Tribunal decisions.
This is a case where the CBEC at the highest level should take action to implement both judicial discipline and administrative discipline. Otherwise such harassment to the manufacturers by resorting to protracted useless litigation will continue.
Conclusion
Apart from the action recommended above, the CBEC should amend the Central Cre-dit Rules 2004 to specifically provide for allowing Cenvat Credit to the raw materials which are first used to make intermediate products which are exempted and which then are used to manufacture dutiable final product.
E-mail: smukher2000@yahoo.com
