2009 (3) TMI 780 - AT - Central Excise

Issues:
1. Whether the assessee contravened Rule 57CC and/or Rule 57AD of the C. Ex. Rules, 1944 by availing Modvat/Cenvat credit on common inputs used in the manufacture of dutiable and exempted goods without maintaining separate accounts.

Analysis:
The main issue in this case was whether the assessee had contravened Rule 57CC and/or Rule 57AD of the Central Excise Rules, 1944 by availing Modvat/Cenvat credit on common inputs used in the manufacture of dutiable and exempted goods without maintaining separate accounts. The Commissioner observed that the assessee had substantially complied with the provisions of maintaining separate accounts for inputs used in both types of products. The Commissioner found that the assessee had not availed Modvat/Cenvat credit on certain inputs used in the manufacture of exempted goods and had maintained clear records of the inputs used. The Commissioner also noted that the assessee had reversed Modvat credit proportionately in cases where common inputs were used for both types of products. The Preventive officers verified the records and confirmed that the assessee had complied with the rules by maintaining separate accounts for inputs used in dutiable and exempted goods.

The Revenue, in its appeal, argued that the assessee had not fully complied with the rules as they had not reversed credit on common inputs used in exempted goods. However, the Tribunal concurred with the Commissioner's observations and held that the assessee had substantially complied with the requirements. The Tribunal cited a previous case where it was held that the payment of 8% or 10% is not required when credit on inputs used in exempted goods is paid. Additionally, the Tribunal referred to a High Court case where it was established that the reversal of credit can be made even after the clearance of final products, qualifying for the benefit of exemption. The Tribunal noted that the circulars issued by the CBEC at the relevant time allowed the option to reverse actual credit contained in inputs or pay 8% of the price of exempted goods. As the assessee had maintained separate inventory of inputs and reversed appropriate credit, the Tribunal found the Revenue's contention unsustainable.

The Tribunal further addressed the Revenue's argument regarding the reversal of credit subsequent to the visit of Preventive Officers. The Tribunal accepted the assessee's explanation that the reversal was unrelated to the inputs used in the manufacture of exempted goods under dispute. Ultimately, the Tribunal found that the case against the assessee did not stand, and the appeal filed by the Revenue was dismissed. The Tribunal upheld the Commissioner's order, emphasizing that the assessee had complied with the rules by maintaining separate accounts and reversing credit where necessary.

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