2012 (12) TMI 853 - AT - Central Excise

Wrong Availment of Cenvat Credit - procedure was not proper in contravention of provisions of Rule 6(1) r.w.e. III of the Rule 6(3) and Rule 6(3)(b) of the Cenvat Credit Rules, 2004 - Held that - As decided in REPRO INDIA LTD. Versus UNION OF INDIA 2007 (12) TMI 209 - BOMBAY HIGH COURT exempted goods can be exported under Bond/UT-1 in terms of Rule 19 of the Central Excise Rules, 2002. It has also been held that in terms of Rule 6(6)(v) of the Cenvat Credit Rules, 2004, the provisions of Rule 6(1) and 6(3) are not applicable in respect of excisable goods cleared without payment of duty for export under Bond. In view of this, the orders of Commissioner confirming the duty demand of CENVAT Credit cannot be sustained. Consequently, also set aside the order for recovery of interest on the dues. Wrong availment of CENVAT Credit on aggregates (i.e. IC engines, transmission assembly and sheet metal components etc.) used captively in the manufacture of exempted tractors cleared for export - Held that - Parts of tractors are unconditionally exempted vide Sr. No. 92 of Notification No. 6/2006-CE dated 1.3.2006 when captively used in the manufacture of tractors within the factory. By virtue of Section 5A, Central Government may, in public interest, exempt either absolutely or subject to any condition (to be fulfilled before or after removal) as may be specified in the Notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon - upheld the demand of duty and also Commissioner s order for recovery of interest on these demands confirmed by the Commissioner - these demands were raised invoking normal period of limitation - ingredients of Section 11AC are not present in this case and, therefore, penalty equal to duty imposed by the Commissioner needs reduction - penalties to reduced to Rs. 1.25 crores and Rs.1 crore in respect of Appeal respectively - appeal allowed partly. CENVAT Credit of advertisement services used in relation to manufacture of tractors cleared within the country - Held that - Assessee is not entitled to take the CENVAT Credit on advertisement services used in relation to manufacture of tractors cleared within the country. Therefore, the CENVAT Credit taken is to be reversed. So far as the interest is concerned, in terms of Rule 14 of the Cenvat Credit Rules, 2004, interest is payable from the date of taking wrong credit - penalty of Rs. 2000/- imposed on the assessee by the Commissioner is set aside.

Issues Involved:
1. Confirmation of duty demands including education cess and secondary and higher secondary education cess along with interest.
2. Imposition of penalties under Rule 15(2) and Rule 15(3) of the Cenvat Credit Rules, 2004.
3. Availment and utilization of CENVAT Credit on inputs and input services.
4. Applicability of Rule 6(1) and Rule 6(3) of the Cenvat Credit Rules, 2004.
5. Export of exempted goods under Bond/UT-1.
6. Interpretation of Notification No. 6/2006-CE and Section 5A(1A) of the Central Excise Act, 1944.
7. Reversal of CENVAT Credit on advertisement services used for exempted tractors.

Detailed Analysis:

1. Confirmation of Duty Demands:
The Commissioner of Central Excise, Mumbai-V confirmed various amounts of duty demands including education cess and secondary and higher secondary education cess along with interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A and Section 11AB of the Central Excise Act, 1944. The demands were detailed in a tabular form for different periods and appeals.

2. Imposition of Penalties:
The Commissioner imposed equal amounts of penalties under Rule 15(2) of the Cenvat Credit Rules, 2004 for Appeals No. E/675, 1060, and 1190/09-Mum. For Appeal No. E/1182/09-Mum, a penalty of Rs. 2000/- was imposed under Rule 15(3) of the Cenvat Credit Rules, 2004.

3. Availment and Utilization of CENVAT Credit:
The appellant was engaged in the manufacture of tractors and related parts, availing credit on inputs used in the manufacture of dutiable parts cleared outside and tractors. The appellant paid 10% of the sale price of tractors cleared for home consumption under Rule 6(3)(b) of the Cenvat Credit Rules but did not pay 10% for tractors exported under Bond/UT-1 as per Rule 6(6)(v).

4. Applicability of Rule 6(1) and Rule 6(3):
The department objected to the procedures adopted by the appellant, alleging contravention of Rule 6(1) read with Explanation III of Rule 6(3) and Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The appellant argued that Rule 6(6)(v) allowed them to avail CENVAT Credit for inputs and input services used in the manufacture of tractors exported under Bond/UT-1.

5. Export of Exempted Goods under Bond/UT-1:
The appellant relied on the judgment of the Bombay High Court in Repro India Ltd. vs. UOI, which held that exempted goods could be exported under Bond in terms of Rule 19 of the Central Excise Rules, 2002, and that Rule 6(1) and Rule 6(3) of the Cenvat Credit Rules were not applicable to excisable goods cleared without payment of duty for export under Bond.

6. Interpretation of Notification No. 6/2006-CE and Section 5A(1A):
The appellant contended that parts of tractors were exempted under Sr. No. 92 of Notification No. 6/2006-CE when captively consumed, and thus, duty could be paid by taking credit on inputs used. The department argued that Section 5A(1A) mandated that no duty should be paid on parts of tractors used captively, making the appellant's procedure incorrect.

7. Reversal of CENVAT Credit on Advertisement Services:
The appellant admitted taking CENVAT Credit on advertisement services used for tractors cleared within India but argued that since the credit was not utilized and remained frozen, no interest or penalty should be imposed. The tribunal upheld the need to reverse the credit and confirmed the order for recovery of interest but set aside the penalty of Rs. 2000/-.

Conclusion:
The tribunal set aside the demands of duty for several amounts and the corresponding orders for recovery of interest. However, it upheld the demands of Rs. 8,28,20,311/- and Rs. 7,12,75,282/- for wrong availment of CENVAT Credit on aggregates used captively, along with the recovery of interest. Penalties were reduced to Rs. 1.25 crores and Rs. 1 crore for the respective appeals. The tribunal also confirmed the reversal of CENVAT Credit on advertisement services and the recovery of interest but set aside the penalty. Appeals No. E/675, 1190 & 1182/09-Mum were partly allowed, and Appeal No. E/1060/09-Mum was allowed in toto.

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