2010 (7) TMI 343 - AT - Central Excise

Cenvat credit Input used for dutiable and exempted goods separate records not maintained - finding of the Commissioner that the only remedy is under Rule 6(3)(i) of the said Rules and thereby to pay the amount equal to 10% of the value of the exempted goods is not correct Held that - Sub-rule (3) of Rule 6 clearly gives option to the manufacturer in this regard and once the said option is given, it will be for the manufacturer to make the choice matter remanded for re-consideration

Summary

Issues:
Demand confirmation based on failure to maintain separate accounts for inputs and credits utilization in dutiable and non-dutiable final products.

Analysis:
The appeal before the Appellate Tribunal arises from an order passed by the Commissioner confirming a demand of Rs. 7,37,92,949/- against the appellants along with a penalty of equal amount. The demand was primarily upheld due to the appellants' failure to maintain separate accounts for inputs and credits used in the production of dutiable and non-dutiable final products. The appellants, engaged in manufacturing biscuits, availed cenvat credit facility and cleared products on payment of duty or nil rate of duty under specific notifications. Show cause notices were issued for not maintaining separate accounts as required by Rule 6(2) of the Cenvat Credit Rules, 2004. The appellants contended that non-maintenance entitled them to benefits under sub-rule 3(ii) and (3A) of Rule 6, exempting them from liability for exempted goods. Despite raising this defense, the Commissioner imposed a 10% liability on the value of exempted goods, contrary to the law.

Upon review, the Appellate Tribunal found that the impugned order did not address the specific defense raised by the appellants. The Tribunal noted that the Commissioner failed to consider whether the appellants were entitled to benefits under sub-rule 3(ii) and (3A) of Rule 6. The Commissioner's assertion that the only remedy was under Rule 6(3)(i) and imposing a 10% liability was deemed incorrect. Rule 6(3) provides manufacturers with an option, and the Commissioner should have evaluated the appellants' plea and made a proper determination based on the law and evidence. As the Commissioner did not do so, the impugned order was set aside, and the matter was remanded for a fresh decision after hearing both parties and applying the law correctly. Therefore, the appeal was disposed of based on this limited point, emphasizing the necessity for a proper assessment and application of legal provisions.