2008 (4) TMI 744 - AT - Central Excise

CENVAT credit - inputs used in, or in relation to, the manufacture of the exempted final product has been paid prior to the removal of the exempted final products from the factory - Held that - matter referred to Larger Bench to decide the issue Whether the provisions of Rule 6 (3) (b) of the Cenvat Credit Rules, 2002 are applicable or not, when the amount equivalent to the Cenvat credit attributable to the inputs used in, or in relation to, the manufacture of the exempted final product has been paid prior to the removal of the exempted final product from the factory? - matter referred to Larger Bench.

Summary

Issues:
- Interpretation of Rule 6 (3) (b) of the Cenvat Credit Rules, 2002 regarding payment obligations when Cenvat credit attributable to inputs used in the manufacture of exempted final products has been paid before removal.

Analysis:
1. The appeal challenged an Order-in-Original directing payment of specific amounts under Rule 12 of Cenvat Credit Rules, 2002. The central issue was the applicability of Rule 6 (3) (b) concerning payment obligations when Cenvat credit for inputs used in exempted final products has been paid before removal.

2. The appellants manufactured goods attracting different excise duties. The dispute arose when the Revenue claimed payment due to the use of inputs in exempted goods. The Revenue argued that once credit is taken on inputs, there is no provision to reverse it, necessitating payment based on the value of exempted goods.

3. Various circulars and case laws were cited by both parties to support their interpretations. The appellants relied on precedents indicating that reversal of credit before clearance exempts them from additional payments, while the Revenue cited cases emphasizing payment obligations in the absence of separate input accounts.

4. The Tribunal analyzed Rule 6 provisions, noting that Cenvat credit is disallowed for inputs in exempted goods unless separate accounts are maintained. Rule 6 (3) (b) mandates payment if separate accounts are not kept, rejecting the notion of credit reversal as a substitute for payment.

5. The Tribunal highlighted the unambiguous nature of Rule 6, emphasizing that failure to comply with its provisions results in the payment obligation. The appellants' disregard for the rule's clarity does not warrant relief based on equity, as the law's strict application is necessary.

6. Due to conflicting Tribunal decisions, the matter was referred to a Larger Bench for resolution. The key question referred was whether Rule 6 (3) (b) applies when Cenvat credit for inputs in exempted final products has been paid before their removal from the factory.

7. The Tribunal's decision underscored the importance of adhering to statutory provisions, rejecting the notion of credit reversal as a valid alternative to payment obligations under Rule 6. The case exemplified the significance of compliance with clear legal mandates in excise duty matters.

8. The Tribunal's detailed analysis and referral to a Larger Bench aimed to resolve the conflicting interpretations and provide clarity on the application of Rule 6 (3) (b) in similar excise duty disputes. The judgment emphasized the need for strict adherence to statutory rules in tax matters to ensure consistency and fairness in enforcement.