Case Note & Summary
The case involves a reference to a larger Bench of the Supreme Court to resolve an apparent conflict between two decisions: Commissioner of Central Excise, Vadodara v. Gujarat State Fertilizers and Chemicals Ltd. (GSFCL) and Commissioner of Central Excise v. Gujarat Narmada Fertilizers Co. Ltd. The respondent, Gujarat Narmada Valley Fertilizers Co. Ltd., utilized CENVAT duty-paid Low Sulphur Heavy Stock (LSHS) as fuel input for generating steam, which was then used to generate electricity for manufacturing fertilizer that was exempt from excise duty. The Revenue issued show-cause notices contending that CENVAT credit was wrongly availed. The Commissioner confirmed the demand, but the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) allowed the assessee's appeals, relying on a larger Bench decision that followed a Gujarat High Court judgment. The Supreme Court, in its earlier judgment in Gujarat Narmada (2009) 9 SCC 101, had overruled that High Court decision. The reference order noted a conflict between GSFCL (which allowed credit under MODVAT Rules) and Gujarat Narmada (which denied credit under CENVAT Credit Rules). The Supreme Court examined the relevant rules: Rule 57B(1) of the MODVAT Rules expressly allowed credit on inputs used as fuel, whereas Rule 6(1) of the CENVAT Credit Rules, 2002 prohibited credit on inputs used in manufacture of exempted goods, with an exception in sub-rule (2) for inputs intended to be used as fuel only in the context of maintaining separate accounts. The Court held that the MODVAT scheme was different from the CENVAT scheme, and the principle in GSFCL did not apply. The Court concluded that under the CENVAT Credit Rules, 2002, an assessee is not entitled to claim CENVAT credit on duty-paid LSHS utilized as an input in the manufacture of fertilizer exempt from duty. The appeals were allowed, and the impugned order of the Tribunal was set aside.
Headnote
A) Central Excise - CENVAT Credit - Inputs Used in Exempted Goods - Rule 6(1) CENVAT Credit Rules, 2002 - The core issue was whether CENVAT credit on LSHS used as fuel for generating steam and electricity for manufacturing exempted fertilizer is allowable - The Supreme Court held that Rule 6(1) prohibits credit on inputs used in manufacture of exempted goods, and the exception in sub-rule (2) for inputs intended to be used as fuel does not override sub-rule (1) - The Court resolved the conflict between GSFCL and Gujarat Narmada by holding that the CENVAT scheme is different from MODVAT and credit is not available (Paras 1-10).
Issue of Consideration
Whether under the CENVAT Credit Rules, 2002 an assessee is entitled to claim CENVAT credit on duty-paid LSHS utilized as an input in the manufacture of fertilizer exempt from duty.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned order of the Tribunal, and held that the assessee is not entitled to CENVAT credit on duty-paid LSHS utilized as an input in the manufacture of fertilizer exempt from duty under the CENVAT Credit Rules, 2002.
Law Points
- CENVAT credit not allowable on inputs used in manufacture of exempted goods
- Rule 6(1) CENVAT Credit Rules 2002
- MODVAT Rules distinguished from CENVAT Credit Rules
- Inputs used as fuel not exempt from Rule 6(1) unless covered by sub-rule (2)
- Conflict between GSFCL and Gujarat Narmada resolved
