2011 (1) TMI 724 - AT - Central Excise

Reversal of Cenvat credit - Manufacturing of exempted and dutiable goods - Provisions of Rule 6(3) read with Rules 6(3)(A) - the appellants have availed the Cenvat Credit on common inputs - Appellant has canvassed his case stating that they have reversed the Cenvat Credit attributable to the inputs which has gone into exempted goods cleared to defence, in support of such a proposition a chart has been provided by them - Find that some effort has been made by the appellant to identify the inputs used in the final products cleared to the defence by claiming exemption - If such detailed workings of the appellant are correct, then in my view, the provision of Rule 6(3) has been complied with by the assessee/appellant and also the procedure specified in sub-rule (3A) - Also find that the CBEC Circular No.868/6/2008-CX dt. 9/5/2008 also reiterates that if it is possible to calculate the reversal based upon the actual consumption of inputs, then that should be considered as compliance of sub-rule (3A) of Rule 6 - Since both these factual matrixes i.e. circular as well as consumption, have not been considered by lower authorities - Therefore, set aside the impugned order and remand the matter back to the Adjudicating Authority to re-consider the issue - Appeal is allowed by way of remand

Summary

Issues: Compliance with Rule 6(3) and Rule 6(3)(A) regarding reversal of Cenvat Credit for inputs used in exempted goods cleared to defense services.

In this case, the appellant manufactured both dutiable and exempted goods using common inputs with availed Cenvat Credit. The appellant cleared final products to defense services under exemption notification and reversed the Cenvat Credit for inputs in those goods. However, the lower authorities issued a show-cause notice demanding recovery for utilizing duty paid Cenvat Credit on common inputs. The Adjudicating Authority confirmed the demands, which was upheld by the Commissioner(Appeals), leading to this appeal.

The appellant argued that the authorities erred in concluding that they must pay 5% of the value of exempted goods since they cannot avail the benefit of Rule 6(3)(ii). They contended that they could directly apply Rule 6(3)(ii) by identifying the inputs used in exempted goods. The Department argued that the appellant's workings were not adequately addressed by the lower authorities.

The Tribunal analyzed the case and found that the appellant had reversed the Cenvat Credit for inputs used in exempted goods cleared to defense services. The appellant provided a detailed chart to support their claim. The Tribunal noted that if the appellant's detailed workings were accurate, Rule 6(3) and sub-rule (3A) requirements were met. Referring to a CBEC Circular, the Tribunal emphasized that if actual input consumption could determine the reversal, it would comply with Rule 6(3A). Since the lower authorities did not consider these aspects, the Tribunal set aside the order and remanded the matter to the Adjudicating Authority for a re-evaluation, emphasizing the need to consider the appellant's submissions on input consumption, the circular, and ensure adherence to natural justice principles.

Therefore, the Tribunal allowed the appeal by remanding the case to the adjudicating authority for a fresh assessment based on the detailed input consumption workings provided by the appellant and the relevant legal provisions and circulars.