2009 (4) TMI 508 - AT - Central Excise

Manufacture of dutiable and exempted products - assessee did not maintain separate accounts for receipt, inventory and consumption of inputs as per Cenvat Credit Rules - SCN was issued for demand of an amount equal to 8%/10% of the total price excluding sale tax and other tax in respect of exempted goods under Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 - appellants had not taken entire credit on the duty paid on the inputs used in dutiable and exempted products. It is on record that they had availed credit on pro-rata basis - credit taken only in respect of inputs used in dutiable products - Held that - demand of 8%/10% of the value of the exempted products is not at all justified, no justification for invocation of longer period and imposition of mandatory penalty

Issues Involved:
1. Non-maintenance of separate accounts for receipt, inventory, and consumption of inputs.
2. Demand for an amount equal to 8%/10% of the total price of exempted goods.
3. Availment of input service tax credit on the entire amount instead of pro-rata basis.
4. Imposition of penalties and interest.

Detailed Analysis:

1. Non-maintenance of Separate Accounts for Receipt, Inventory, and Consumption of Inputs:
The appellants, manufacturers of both dutiable and exempted products, used common inputs like crude palm oil, hydrogen gas, and nickel catalyst. The Revenue proceeded against them for not maintaining separate accounts as required under Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004. The Commissioner found that the appellants did not maintain separate accounts for hydrogen gas, although they did so for crude palm oil and nickel catalyst. The appellants argued that they maintained separate accounts on a pro-rata basis, which was not disputed by the Revenue. The Tribunal held that maintaining separate accounts for receipt, consumption, and inventory does not necessitate separate storage, thus the appellants' practice of pro-rata credit was valid.

2. Demand for an Amount Equal to 8%/10% of the Total Price of Exempted Goods:
The Commissioner demanded 8%/10% of the total price of exempted goods due to non-maintenance of separate accounts. The appellants contended that they maintained separate accounts on a pro-rata basis and provided detailed records and methodologies for the same. The Tribunal found that the appellants' scientific method of calculating the hydrogen gas consumed for dutiable and exempted products was valid. Consequently, the demand for 8%/10% was deemed unjustified.

3. Availment of Input Service Tax Credit on the Entire Amount Instead of Pro-rata Basis:
The appellants inadvertently availed the entire credit on input services instead of pro-rata credit but reversed the entire credit along with interest. The Commissioner imposed a penalty despite this reversal. The Tribunal referenced the Larger Bench decision in Nicholas Piramal (I) Ltd. v. CCE, Thane-I, which held that reversal of credit amounts to non-availment of credit. The Tribunal agreed that the reversal restored the original position, thus no penalty was warranted.

4. Imposition of Penalties and Interest:
The Commissioner imposed penalties and interest for non-compliance with Rule 6(3)(b) and incorrect availment of input service tax credit. The Tribunal found that the appellants had kept the Department informed and there was no suppression of facts. The invocation of the extended period and imposition of penalties were deemed unjustified. The Tribunal noted that penalties are not automatic and require proof of intent, which was not established by the Revenue.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential relief, affirming that the appellants' pro-rata credit methodology was valid and the reversal of input service tax credit amounted to non-availment of credit. The demands for 8%/10% and penalties were unjustified.

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