2005 (8) TMI 594 - AT - Central Excise

Summary

Issues:
1. Liability to pay Cenvat Credit for input used in exempted finished product.
2. Dispute over processing loss and reversal of credit.
3. Time bar for demand on extended period.
4. Request for waiver of penalty amount.

Analysis:

1. The main issue in this case is the liability of the Respondents to pay Cenvat Credit attributable to the input used in the manufacture of an exempted finished product, Extra Neutral Alcohol (ENA). The rule cited, Rule 6(3)(a) of Cenvat Credit Rules, 2002, mandates the payment of an amount equivalent to the Cenvat Credit for inputs used in or in relation to exempted finished products. The judgment holds that the Respondents are indeed liable to pay the Cenvat Credit attributable to the Molasses used in the production of ENA, despite any processing loss occurring at intermediate stages.

2. The dispute over processing loss and reversal of credit arises from the differing percentages considered by the parties. The Respondents had reversed credit accounting for a 2.4% processing loss, while the lower Appellate Authority allowed only a 2% processing loss. The Department appealed against the allowance of the 2% processing loss, and the Respondents cross-appealed for not allowing a 0.4% processing loss. The judgment clarifies that the processing loss at the intermediate stage of manufacture is irrelevant for reversing the Cenvat Credit under the rule, emphasizing that the credit taken for Molasses used in producing ENA must be reversed regardless of processing losses.

3. Another issue raised is the time bar for the demand on the extended period, covering April 2002 to November 2003. The Respondents argued that the demand for the period up to March 2003 should be considered time-barred due to industry practice not reversing credit for processing loss. However, the judgment rejects this argument, stating that non-disclosure of processing loss percentage and failure to inform the department about not reversing credits preclude the time bar defense.

4. Lastly, the Respondents requested a waiver of the penalty amount, citing the reversal of balance credit after accounting for processing loss and aligning their practices with the industry. The judgment takes a lenient view, considering the circumstances and the Respondents' obligation to pay interest on the demanded amount, ultimately deciding to waive the penalty imposed on the Respondents.

In conclusion, the appeal and cross-appeal are disposed of with the Department's appeal being allowed, confirming the duty demand, and the Respondents' cross-appeal being rejected. The penalty imposed on the Respondents is waived, taking into account the overall facts and circumstances of the case.