CENVAT credit on LSHS utilized in manufacture of exempted fertilizer - Matter referred to Larger Bench: Supreme Court
THE History:
1.The Tribunal Larger Bench by its order dated 27th December 2006/4th January 2007 (), held that the assessee was entitled to claim cenvat credit on the LSHS used as input for producing steam and electricity for the manufacture of fertilizer. According to the larger Bench, the issue raised by the assessee was fully covered in its favour by a decision of the Tribunal in Gujarat Narmada Fertilizers Co. Ltd. v. Commissioner of Central Excise, Vadodara , () against which the Revenue's appeal before the Gujarat High Court was dismissed since no substantial question of law arose in Commissioner of Central Excise and Customs v. Gujarat Narmada Fertilizers Co. Ltd ., (). The Larger Bench held that, that the assessees are eligible to cenvat credit of duty paid on that quantity of LSHS which was used for producing steam and electricity used in turn in relation to manufacture of exempted goods, namely fertilizers.
2. Based on the Larger Bench Order, A division Bench allowed the assessee's appeals, which is now impugned in the Supreme Court.
3. Meanwhile, Revenue filed an appeal against the Larger Bench Decision and the Supreme Court in Commissioner of Central Excise v. Gujarat Narmada Fertilizers Company Limited, - set aside the order of the larger Bench and decided the issue in favour of the Revenue. The Supreme Court held that on a cumulative reading of Rule 6(1) and Rule 6(2) of the Rules (CENVAT CREDIT RULES) it is clear that the legal effect of Rule 6(1) of the Rules is applicable to all inputs, including fuel. Therefore, cenvat credit will not be permissible on the quantity of fuel used in the manufacture of exempted goods. As regards non-fuel inputs, an assessee would have to maintain separate accounts or be governed by Rule 6(3) of the Rules.
4. There was an earlier case of Commissioner of Central Excise Vadodara v. Gujarat State Fertilizers & Chemicals Ltd.,() in which the Supreme Court had clearly held that a claim of modvat credit on LSHS is justified if it is used in the manufacture of steam, which in turn is used in the generation of electricity for the manufacture of fertilizer exempt from duty.
While deciding the case in (3) above, the Supreme Court had not noticed the decision in GSFCL case in (4) above which, resulted in two diametrically opposite decisions on the same subject.
The Supreme Court noted that there was an apparent conflict between the decisions in (3) and (4) above.
So, the only option before the Supreme Court was to refer the matter to the Chief Justice to constitute a Larger Bench.
In Commissioner of Central Excise v. Gujarat Narmada Fertilizers Company Limited, - , the Supreme Court had stated, "It may be noted that litigation on interpretation of CENVAT Credit Rules has arisen on account of various conflicting decisions given by the various Benches of CESTAT, the reason being that the Rules have not been properly drafted ".
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