2006 (1) TMI 493 - Commissioner - Central Excise

Issues Involved:
1. Remission of duty on destroyed goods.
2. Reversal of Cenvat credit on inputs used in the manufacture of destroyed goods.
3. Applicability of limitation period for demand of Cenvat credit reversal.
4. Validity and binding nature of CBEC circulars.
5. Imposition of interest and penalty.

Issue-wise Detailed Analysis:

1. Remission of Duty on Destroyed Goods:
The Dorgenil and Alaspan Tablets manufactured by M/s. Intas Pharmaceuticals Ltd. were found unfit for human consumption and were destroyed after obtaining remission of duty from the Commissioner, Central Excise, Ahmedabad-II. The remission of duty was granted under Rule 21 of the Central Excise Rules, 2002, based on applications by M/s. Intas Pharmaceuticals Ltd.

2. Reversal of Cenvat Credit on Inputs Used in the Manufacture of Destroyed Goods:
The Commissioner issued a show cause notice to M/s. Intas Pharmaceuticals Ltd. demanding the reversal of Cenvat credit amounting to Rs. 23,70,893/- availed on inputs used in the manufacture of the destroyed goods. The Commissioner argued that once the final products were destroyed with remission of duty, the input credit should not be allowed, equating it with clearances at nil rate of duty. The Commissioner cited the case of M/s. Mafatlal Industries Ltd., where it was held that allowing credit on inputs when the final products suffer no duty would confer an unintended benefit.

3. Applicability of Limitation Period for Demand of Cenvat Credit Reversal:
M/s. Intas Pharmaceuticals Ltd. argued that the demand for reversal of Cenvat credit was time-barred as the notice was issued beyond the normal period of one year. They contended that the extended period of five years was not applicable as there was no suppression of facts. The Commissioner, however, held that the demand was not time-barred, as the failure to reverse the credit was a deliberate act by M/s. Intas Pharmaceuticals Ltd., and the extended period was applicable.

4. Validity and Binding Nature of CBEC Circulars:
M/s. Intas Pharmaceuticals Ltd. relied on CBEC Circular No. 650/41/2002-CX, dated 7-8-2002, which clarified that in cases of remission, the Cenvat credit need not be reversed. However, the Commissioner noted that this circular was withdrawn by Circular No. 800/33/2004-CX, dated 1-10-2004, which stated that input credit on such final products should be recovered with interest. The Commissioner held that the earlier circular was not binding and that the withdrawal circular was applicable.

5. Imposition of Interest and Penalty:
The Commissioner confirmed the demand for reversal of Cenvat credit amounting to Rs. 23,70,893/- and imposed interest under Section 11AB of the Central Excise Act, 1944. A penalty of Rs. 5,00,000/- was also imposed under Rule 13 of Cenvat Credit Rules, 2001, Rule 15 of Cenvat Credit Rules, 2002, and Section 11AC of the Central Excise Act, 1944. The Commissioner took a lenient view on the quantum of penalty considering the circumstances.

Conclusion:
The judgment concluded that M/s. Intas Pharmaceuticals Ltd. was liable to reverse the Cenvat credit availed on inputs used in the manufacture of destroyed goods, pay the confirmed amount along with interest, and a penalty of Rs. 5,00,000/-. The reliance on the earlier CBEC circular was deemed misplaced, and the extended period for demand was held applicable due to the deliberate act of not reversing the credit.

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