2006 (11) TMI 517 - AT - Central Excise

Summary

Issues:
1. Availing Cenvat credit on inputs used for manufacturing both dutiable and exempted products.
2. Reversal of credit taken on Hexane used in the manufacture of dutiable and exempted products.
3. Interpretation of Rule 6 of the Cenvat Credit Rules, 2002 regarding the treatment of common inputs.

Analysis:
1. The appellants were involved in the manufacture and sale of refined edible oil and were availing Cenvat credit on their inputs. They had manufactured refined rice bran oil, a dutiable product, using Hexane as a solvent. By-products emerged during the manufacturing process, which were cleared without duty payment due to exemption under Section 5A of the Central Excise Act. The issue at hand was the treatment of Hexane, a common input for both dutiable and exempted products, under Rule 6 of the Cenvat Credit Rules, 2002.

2. The appellants had the option under Rule 6 to either not take credit on the quantity of Hexane used in exempted products or pay 8% of the price of the exempted products to the Government. The records indicated that the appellants had reversed the entire credit taken on Hexane used in the manufacture of both dutiable and exempted products. They chose to exercise the first option as per the rule. Therefore, the Department's demand for 8% of the price of the exempted products was unwarranted since the credit on Hexane was already reversed by the appellants.

3. The Tribunal found that the impugned order, which acknowledged the reversal of the credit taken on Hexane by the appellants, could not be sustained. As the appellants had complied with the requirements of Rule 6 by reversing the credit, there was no basis for the Department's demand for additional payment. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellants. The judgment clarified the application of Rule 6 in cases involving common inputs for dutiable and exempted products, emphasizing the importance of compliance with the rule's provisions.

(Order dictated and pronounced in open Court)