2011 (5) TMI 533 - AT - Central Excise

Utilization of cenvat credit for payment of amount of 10% of the value of the exempted final products in terms of provisions of Rule 6(3)(b) and for clearance of the inputs - Held that - As inputs utilized in the manufacture of dutiable as also exempted final products, the appellants have followed the provisions of Rule 8 for discharging their duty liability on consignment basis and out of PLA, during the period of dispute on account of default for payment of duty in the month of March 2007 - The appellants were required to pay 10% of value of the final exempted goods in terms of the provisions of Rule 6(3)(b) of Cenvat Credit Rules - As this amount payable at the time of clearances of the exempted final products is primarily intended to counter-effect the credit availed on the inputs used in the manufacture of such final exempted products. As such, the intent being to neutralize the credit so availed, the explanation provides for payment from the cenvat credit account itself. As such, in views to apply the provisions of Rule 8 (3A), requiring the assessee to pay duty out of PLA during the period of default would not apply to the provisions of Rule 6 (3)(b) payments - as appellants are regularly making payments from PLA, if the demand in question is held to be payable from PLA, they are admittedly entitled to make a re-credit entry in their cenvat credit account as they have already debited the said amount from their cenvat credit account - The said credit would again be available to the appellants to discharge duty on the final products cleared from their factory - As such,find that the entire exercise is the revenue neutral, thus making the demand against the appellant as un-sustainable - Decided in favour of assessee.

Issues:
1. Default in payment of duty liability for the month of March 2007.
2. Utilization of cenvat credit for payment of exempted final products.
3. Interpretation of Rule 8 (3A) and Rule 6 (3)(b) of Cenvat Credit Rules, 2004.
4. Demand of duty, interest, and penalty imposed by lower authorities.
5. Applicability of Rule 3(4) and Rule 6 (3) of Cenvat Credit Rules, 2004.

Analysis:
1. The appellant, engaged in manufacturing various products falling under specific chapters of the Central Excise Tariff Act, defaulted in paying duty of Rs. 22,32,118 for March 2007, which was paid in December 2007. Due to this default, their facility to use cenvat credit for payment was withdrawn, and duty had to be paid out of PLA.

2. The dispute arose concerning the utilization of cenvat credit for exempted final products under Rule 6(3)(b) of Cenvat Credit Rules, 2002. The Revenue objected to the appellant's use of cenvat credit for exempted products, leading to proceedings and a demand of Rs. 7,00,844 along with interest and penalty.

3. The lower authorities held that the amount payable under Cenvat Credit Rules 2004 is akin to duty, restricting the utilization of cenvat credit for exempted final products. The appellant argued that Rule 3(4) does not restrict payment for exempted goods under Rule 6(3)(b) and that they have already paid the duty from cenvat credit.

4. The appellant contended that the payment for exempted goods under Rule 6(3)(b) should not be equated with duty on final products under Rule 3(4)(a). They also argued that if required to pay from PLA, they should be allowed to reverse the credit in their cenvat account, making the demand revenue neutral.

5. The Member (Judicial) found that the dispute was narrow, emphasizing that the intent of Rule 6(3)(b) is to counter-effect the credit availed on inputs for exempted products. The appellant's regular payments from PLA and the ability to re-credit the cenvat account made the demand unsustainable. The impugned order was set aside, and the appeal was allowed with consequential relief to the appellants.

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