2012 (6) TMI 44 - AT - Central Excise

Stay applications - allegation against the appellant company is that during the period of dispute i.e. from 01.04.2005 to 31.03.2006, they used common inputs viz. packing materials in or in relation to the manufacture of excisable goods as well as exempted goods without maintaining separate records - no reasons have been given for rejecting the appellant s plea that there was no manufacturing activity in respect of the goods which according to the department are exempted goods and while according to the appellant is only a trading activity Held that - original adjudicating authority must give a clear finding as whether the goods which are alleged to be exempted goods are the outcome of a process which amount to manufacture. The appeals are allowed by way of remand, Stay applications also stands disposed of

Issues:
1. Allegation of improper use of CENVAT credit for inputs used in manufacturing both excisable and exempted goods without maintaining separate records.
2. Imposition of penalties on the appellant company and its directors for alleged non-compliance with Rule 6(2) of CENVAT Credit Rules, 2004.
3. Dispute regarding whether the activities undertaken by the appellants amount to manufacturing of exempted goods.
4. Interpretation of Rule 6(2) and 6(3) of CENVAT Credit Rules, 2004 in the context of the case.

Analysis:
1. The appellants faced allegations of using common inputs for manufacturing both excisable and exempted goods without maintaining separate records, leading to the issuance of show-cause notices for recovery of amounts under Rule 6(3)(b) of CENVAT Credit Rules, 2004. The Additional Commissioner confirmed the demands and imposed penalties on the appellant company and its directors. The appellants contended that their activities did not amount to manufacturing exempted goods, but their plea was rejected by the authorities. The issue revolved around the proper maintenance of separate records for inputs used in different types of products.

2. The appellant's advocate argued that the activities undertaken by the appellants, such as repacking and relabelling purchased chemicals, did not constitute manufacturing exempted goods. They reversed the CENVAT credit involved once the issue was highlighted. On the other hand, the Respondent defended the imposition of penalties by emphasizing that the appellants failed to maintain separate inventories for dutiable and exempted final products, as required by Rule 6(2). The dispute centered on whether the appellants' actions warranted penalties under the CENVAT Credit Rules.

3. The core dispute in the case was whether the activities carried out by the appellants, including repacking and relabelling chemicals purchased from the market, amounted to manufacturing exempted goods. The authorities contended that even if the goods were not excisable, the provisions of Rule 6(3)(b) applied since the appellants utilized CENVAT credit for products considered exempted. The appellate tribunal noted the lack of clear reasons for rejecting the appellant's argument that their actions did not constitute manufacturing exempted goods, leading to the order being set aside for further adjudication.

4. The interpretation of Rule 6(2) and 6(3) of CENVAT Credit Rules, 2004 was crucial in determining the applicability of penalties in the case. Rule 6(2) mandates the maintenance of separate accounts for inputs used in dutiable and exempted goods, while Rule 6(3) outlines the consequences for not following this requirement. The tribunal emphasized that the provisions of these rules applied to excisable goods fully exempt from duty or chargeable at nil rates. The lack of clarity in the lower authorities' reasoning led to the case being remanded for a clear determination on whether the goods in question constituted exempted goods through a manufacturing process.

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