2011 (8) TMI 1091 - HC - Central Excise

Whether the liability for payment of an amount equal to 8 % of the value of the exempted goods u/r 6(3)(b) of CCR 2002/2004 can be fulfilled by mere reversal of credit involved in the inputs contained in the exempted product? - Held that - Rule 6(3)(b) of the CCR 2004 provides that if the exempted goods are other than those described in condition (a) the manufacturer shall pay an amount equal to ten percent of the total price excluding sales tax and other taxes if any paid on such goods of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory - We do not find substance in the contention of the department-appellant that the Company cannot reverse the credit until separate accounts were maintained for which no finding has been recorded by the Tribunal - Rule 6(3)(b) is not attracted in the present case. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Interpretation of Rule 6 (3) (b) of Cenvat Credit Rules 2002/2004 regarding liability for payment of an amount equal to 8% of the value of exempted goods.
- Application of Rule 6 (3) (b) in the case of availing Cenvat Credit on inputs used in the manufacture of exempted goods.
- Compliance with the procedure for reversal of credit under Rule 6 (3) (b).
- Relevance of previous judgments in similar cases.

Analysis:

The judgment by the Allahabad High Court delves into the interpretation of Rule 6 (3) (b) of the Cenvat Credit Rules 2002/2004 concerning the liability for payment of an amount equal to 8% of the value of exempted goods. The case revolved around a company that availed Cenvat Credit on Vanadium Penta-oxide, a catalyst used in manufacturing sulphuric acid, and subsequently reversed the credit on a show cause notice. The Tribunal found that the company cleared sulphuric acid partly on duty payment and partly on capital consumption, with no duty paid on captive consumption. The adjudicating authority demanded duty, imposed penalties, and interest, which was upheld by the Commissioner (Appeals).

The Tribunal's decision was based on the company's reversal of the credit amount on the inputs used in the exempted final product, as required by Rule 6 (3) (b). The Tribunal referred to previous judgments, including ETA Technology Ltd Vs. CCE, Bangalore and Chandrapur Magnet Wires (P) Ltd Vs. Commissioner, to support its decision. The Supreme Court's ruling in Chandrapur Magnet case emphasized that when Modvat credit is taken on inputs for exempted final products, the credit cannot be considered taken for duty on those products. Similarly, the Tribunal in ETA Technology Ltd case held that if Cenvat credit is reversed before goods' removal, the manufacturer is not obligated to pay 8% of the exempted goods' price.

The High Court dismissed the Central Excise Appeal, stating that Rule 6 (3) (b) was not applicable in the case at hand. The Court found no error in the Tribunal's decision to allow the appeal, rejecting the department's argument that separate accounts must be maintained before credit reversal. Thus, the judgment upheld the company's compliance with the reversal of credit procedure under Rule 6 (3) (b) and highlighted the significance of previous legal precedents in similar matters.