Duty Liability Confirmed on Final Product Due to CENVAT Credit Availment: CESTAT sets aside Penalties [Read Order]

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has upheld the central excise duty liability on M/s Asma Traders for their final product owing to their availment of CENVAT credit, but set aside the penalty imposed under Section 11AC of the Central Excise Act, 1944. The matter has been remanded to the Original Authority for recalculation of duty demand after adjusting the duty already paid by the appellant on intermediate goods.

M/s Asma Traders, engaged in the manufacture of Narrow Woven Fabrics, was earlier found availing CENVAT credit on inputs, despite their final product being exempt from excise duty under Notification No. 30/2004-CE, provided no input credit is availed. The firm had initially paid duty on an intermediate product, Polypropylene Multifilament Yarn (PPMFY), under protest from May 2015 onwards. However, in earlier proceedings, the Tribunal ruled that PPMFY, as generated during the continuous manufacturing process, was not marketable and hence not dutiable.

This contradictory position led the revenue authorities to demand excise duty on the final product, which is Narrow Woven Fabrics, on the ground that input credit was availed, thus voiding the exemption. The Commissioner (Appeals) had upheld this demand and imposed a penalty amounting to ₹6.33 lakh under Section 11AC.

In its detailed order by the CESTAT bench comprising Mr. P.K. Choudhary (Judicial Member) and Mr. Sanjiv Srivastava (Technical Member) confirmed that since the appellant had availed CENVAT credit on inputs used for manufacturing exempted goods, they were not entitled to the exemption under Notification No. 30/2004-CE. The Tribunal directed the department to rework the duty demand after giving credit for duty already paid on PPMFY.

However, the Tribunal set aside the penalty, citing that during the relevant period, there was a subsisting order confirming duty on intermediate goods, which was only overturned later. The Tribunal noted that this led to a genuine interpretational issue and, consequently, the imposition of penalty was unwarranted.

This decision reiterates the principle that availment of input credit disqualifies exemption on final products under specific notifications. It also underscores that penalties should not be imposed where duty liability arises due to bona fide interpretational differences.

The case now returns to the adjudicating authority for recalculation of duty, taking into account the amounts already paid by the assessee.

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