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2007 (2) TMI 493 - AT - Central ExciseCENVAT Credit - inputs lying in stock and inputs contained in finished goods lying in stock - manufacture both dutiable and exempted goods - not able to maintain separate accounts - Duty demanded - penalty imposed under Rule 13 and Rule 15 - HELD THAT - The appellants manufacture goods, which are dutiable as well as exempted. It so happened that in certain periods, the appellants manufactured completely exempted products and in certain periods, they manufactured dutiable products in addition to exempted products. It is the contention of the Revenue that when the appellants manufacture only exempted products, they are not entitled for any Cenvat credit. This issue was the subject matter of dispute in the case of Rochi Ram Sons 2003 (3) TMI 160 - CEGAT, NEW DELHI . In the said case, the Tribunal has ruled that Cenvat credit cannot be disallowed if the assessee manufactures for a part of the year only exempted goods when it has all along the intention to manufacture both exempted and dutiable goods. In other words, the period cannot be segregated into two parts. It was further held that Rule 57AD(2) of erstwhile CE Rules (Present Rule 6 of Cenvat Credit Rules), does not require the assessee to manufacture, on day to day basis, both dutiable and exempted goods. In our view, the above ruling of the Tribunal is applicable to the present case. Hence, Cenvat credit is not deniable on that count. As regards the reversal of credit on inputs lying in stock, we find that once the credit is legally earned, it is not necessary to reverse the same consequent to a later exemption of notification. That view has been held in the case of CCE v. Ashok Iron Steel 2002 (1) TMI 91 - CEGAT, NEW DELHI and also TAFE Ltd. v. CCE 2006 (11) TMI 48 - CESTAT, BANGALORE . The ratio of the above cases is squarely applicable. In these circumstances, the demand made by denying the Cenvat credit, is not in order, as the appellants had already paid 8% of the sale value of the goods in terms of Rule 6 of Cenvat Credit Rules. Further, the learned Advocate urged that at each stage, while manufacturing exempted products as well as dutiable products, scrap was generated. Scrap was removed on payment of duty. Since scrap is a waste, it should be deemed as a final product in terms of Board s Circular F. In the case of CCE, Indore v. Surya Roshni 2002 (3) TMI 391 - CEGAT, NEW DELHI , the above view has been upheld. Therefore, it cannot be said that at any point, the appellants cleared only exempted product in view of the generation of scrap which was cleared on payment of duty. On this count also, the appellants are entitled for the Cenvat credit. We are totally in agreement with the view of the appellant. As the duty demanded cannot be sustained in terms of law, no interest is leviable. Therefore, no penalty can be levied. In these circumstances, we allow the appeals with consequential relief, if any.
Issues:
- Disallowance of Cenvat credit on inputs and finished goods - Imposition of penalties under Cenvat Credit Rules - Reversal of credit on inputs due to exemption notification - Treatment of scrap generated during manufacturing process Analysis: Issue 1: Disallowance of Cenvat credit on inputs and finished goods The Commissioner disallowed Cenvat credit of Rs. 3,50,04,285/- on inputs and finished goods under Rule 12 and Rule 14 of the Cenvat Credit Rules. The appellants argued that they manufacture both dutiable and exempted goods and paid 8% of the sale value of exempted products. The Tribunal referred to previous decisions and ruled that Cenvat credit cannot be denied if the intention to manufacture both types of goods existed, even if only exempted products were manufactured for a period. The Tribunal held that the appellants were entitled to Cenvat credit in such circumstances. Issue 2: Imposition of penalties under Cenvat Credit Rules Penalties were imposed under Rule 13(1) of the Cenvat Credit Rules on the appellants and an Assistant Vice President. However, since the demand for duty was not sustainable under the law, the Tribunal ruled that no interest or penalty could be levied. Consequently, the appeals were allowed with any consequential relief. Issue 3: Reversal of credit on inputs due to exemption notification Regarding the reversal of credit on inputs due to an exemption notification, the Tribunal held that once the credit was legally earned, there was no need to reverse it following a later exemption. The Tribunal cited previous cases to support this view and concluded that the demand for denying Cenvat credit was not valid as the appellants had already paid 8% of the sale value of goods as per the rules. Issue 4: Treatment of scrap generated during manufacturing process The appellants argued that scrap generated during manufacturing, cleared on payment of duty, should be deemed as a final product. Referring to relevant circulars and case law, the Tribunal agreed with the appellants, stating that the generation and clearance of scrap meant that the appellants did not clear only exempted products. Therefore, the appellants were entitled to Cenvat credit on the scrap as well. In conclusion, the Tribunal found in favor of the appellants on all issues, allowing the appeals and providing relief as necessary.
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