2005 (6) TMI 353 - AT - Central Excise

Summary

Issues:
Interpretation of Rule 6 of the Cenvat Credit Rules, 2002 regarding payment of 8% of sale price of exempted goods to the Revenue. Application of Rule 12 of the Cenvat Credit Rules, 2002 for recovery of Modvat credit. Invocation of Section 11D of the Central Excise Act for recovery of amounts represented as duty of excise.

Analysis:
The case involved the manufacturing activities of a company producing Caustic Soda and other chemicals, with Ammonium Chloride as a by-product. The company supplied a portion of Ammonium Chloride to a Scientific Organization under a duty exemption notification, while the rest was sold to other buyers with duty payment. Due to availing Modvat credit on inputs used in the entire Ammonium Chloride production, Rule 6 of the Cenvat Credit Rules, 2002 was triggered, requiring payment of 8% of the sale price of exempted goods to the Revenue. The company paid this amount to the Government but recovered it from the buyer, leading to a dispute with the Department.

Upon examination, it was found that the company had shown the 8% collection against "Excise Duty Payable" in the invoices to the buyer. The company argued that the collection was not excise duty as it was implied that the goods were exempt, supported by duty exemption certificates issued to the buyer. The Department relied on a circular prohibiting recovery of the 8% amount from the buyer. However, the Tribunal noted that the purpose of Rule 6 was fulfilled when the company paid 8% to the Government, and equating this payment to Modvat credit was incorrect.

The Tribunal clarified that the company's recovery from the buyer was not Cenvat credit and thus, the demand under Rule 12 for irregularly availed Modvat credit was not sustainable. While the company's conduct represented the amounts as excise duty, the Department could invoke Section 11D of the Central Excise Act for recovery. Consequently, the Tribunal vacated the demand under Rule 12, allowing the appeal with the possibility of the Department pursuing recovery under Section 11D if deemed necessary.