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2010 (12) TMI 166 - AT - Central ExciseCenvat credit - excisable goods removed without payment of duty to a 100% export oriented undertaking as per clause (ii) of Rule 6 (6) of CCR in the case of Repro India Ltd. 2007 - TMI - 33282 - BOMBAY HIGH COURT dealing with a similar situation involving entitlement to CENVAT credit of duty paid on inputs used in the manufacture of exempted goods which are exported Penalty not sustainable - dispute relating to the interest remanded for a fresh decision by the Commissioner after verifying the facts order set aside
Issues Involved:
1. CENVAT credit on inputs used exclusively for exempted goods. 2. CENVAT credit on inputs removed as such. 3. CENVAT credit on inputs used in finished goods exported. 4. CENVAT credit on inputs used in finished goods removed to 100% EOU. 5. CENVAT credit on inputs lying in stock. 6. CENVAT credit on inputs used in finished goods lying in stock. 7. Imposition of penalty. Detailed Analysis: 1. CENVAT Credit on Inputs Used Exclusively for Exempted Goods: The appellant did not maintain separate accounts for dutiable and exempted goods and paid 10% of the sale price of exempted goods cleared domestically. The Tribunal had previously held that CENVAT credit on exclusive inputs used in exempted goods could not be denied if 10% of the sale price was paid. However, the Commissioner followed CBEC Circular No.754/70/2003 and held that Explanation III under Rule 6 (3) was clarificatory in nature, denying credit on inputs used exclusively for exempted goods. The appellant argued that this was contrary to several Tribunal judgments and the law laid down by the Bombay High Court in Repro India Ltd. The Tribunal found that Explanation III, clarifying that credit shall not be allowed on inputs used exclusively for exempted goods, was consistent with the CENVAT scheme and applied retrospectively. 2. CENVAT Credit on Inputs Removed as Such: The appellant had reversed the credit at the time of clearance of inputs as per sub-rule (5) of Rule 3 of CCR. The Tribunal found that there was no requirement in law for payment of interest from the date of actual clearance to the date on which the debit entry was made, indicating the demand for interest was not justified. 3. CENVAT Credit on Inputs Used in Finished Goods Exported: The appellant contended that denial of credit on inputs used in exempted finished products cleared for export under bond was incorrect as they were covered by sub-rule (6) of Rule 6 of CCR. The Tribunal agreed, citing the Bombay High Court judgment in Repro India Ltd., which allowed credit for inputs used in goods exported. 4. CENVAT Credit on Inputs Used in Finished Goods Removed to 100% EOU: Similar to the issue of exported goods, the Tribunal found that inputs used in finished goods removed to a 100% EOU were also covered by sub-rule (6) of Rule 6 of CCR. The impugned order was not sustainable to the extent it confirmed the demand of CENVAT credit for these inputs. 5. CENVAT Credit on Inputs Lying in Stock: The Tribunal found that the demand for credit on inputs lying in stock was premature. It was not known whether these inputs would be used in exempted goods for export or domestic sale with 10% payment. The recovery of input credit involved in these cases should be regulated as per sub-rule (6) of Rule 6 of CCR. 6. CENVAT Credit on Inputs Used in Finished Goods Lying in Stock: Similarly, the Tribunal held that it was premature to demand credit on inputs used in finished goods lying in stock. The future use of these goods, whether for export or domestic sale, was uncertain. 7. Imposition of Penalty: The Tribunal found the imposition of a penalty unjustified as the issue involved the interpretation of provisions. The penalty was set aside, and the dispute was remanded for a fresh decision by the Commissioner after verifying the facts. Conclusion: The Tribunal allowed the appeal by way of remand, setting aside the impugned order and directing the Commissioner to re-examine the issues, particularly concerning the demand of interest and the imposition of penalties. The Tribunal emphasized the retrospective application of Explanation III and upheld the appellant's entitlement to CENVAT credit for inputs used in goods exported or removed to 100% EOU.
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