Full Judgment
2. The short issue involved in the present appeal is denial of Modvat credit in respect of the capital goods i.e. Nitrogen generating plant under the provisions of Rule 57Q on the ground that the same is used in the manufacture of Nitrogen gas which is further used in the manufacture of chemical. The revenue's contention is that though the appellant's final product i.e. phosphoric chemicals are cleared on payment of duty, Nitrogen gas which emerges at the intermediate stage does not attract any duty, being exempted. As such, since nitrogen gas plant is used for manufacture of exempted product, the credit is inadmissible in respect of the same.
3. On the other hand, appellant's contention is that Nitrogen gas is an intermediate product and the same is captively used in the manufacture of dutiable final product. As such, Nitrogen Gas plant is used in the manufacture of ultimate final product on which duty is paid. Reference is made to the Boards Circular No. 664/55/2002-CX., dated 25-9-2002 and as also to the Tribunal's decision laying down that in such circumstances, Cenvat/Modvat credit cannot be denied.
4. After hearing both sides, I find that the disputed issue has been clarified by the board vide its above referred circular. Para 3 of the said circular, which is relevant is produced below : Para 3 "It is, therefore, clarifies that Cenvat credit should not be denied on the capital goods used in the manufacture of intermediate goods exempt from payment of duty which are used captively in the manufacture of finished goods chargeable to duty".
It is well settled that the revenue cannot take a stand contrary to the circular issued by the Board. In any case, I find that the Tribunal in the case of CCE v. Sudarshanam Spinning Mills Ltd. - has held that emergence of exempted intermediary products could not vary or deny the benefit of credit in respect of the capital goods. To the same effect is the Tribunal's decision in the case of Bharat Forge Ltd. v. CCE, Pune - wherein after taking note of the Board's Circular Modvat credit in respect of capital goods used in the manufacture of exempted intermediary products, used captively for further manufacture of dutiable final product, was allowed.
5. In view of the foregoing, I set aside the impugned order and allow the appeal with consequential relief to the appellant, M/s. Excel Industries Ltd. Penalty imposed upon the second appellant Shri Deshpande is also set aside.