2013 (2) TMI 34 - HC - Central Excise

CENVAT Credit Rule 6 of CCR, 2002 - Maintence of separate account Reversal of CENVAT Credit - Clearance of such final product under notification No.29/2004 and 30/2004 - Assessee receives either total or conditional/partial exemption from payment of duties - Assessee utilized duty paid inputs for production of exempt as well as non-exempt final products Department argued that reversal of credit must be before utilization of the input - the assessee is not entitled to retain Cenvat Credit on the inputs used in manufacturing of final product, which is exempt from payment of duty Held that - Manufacturing not intending to maintain separate accounts had to follow the procedure provided in Rule 6(3), sub-rule (a) or (b) as the case may be. In cases falling under Rule 6(3)(a), there was only requirement of payment of amount of CENVAT credit attributable to inputs used in or in relation to manufacture of the final product at the time of clearance from the factory. It was only under subrule (3)(b) which does not cover the cases falling under Rule 6(3)(a) that the manufacturer had to pay a flat rate of duty. In all cases falling under Rule 6(3)(a) the only requirement was that the manufacturer should pay an amount equivalent to Cenvat Credit attributable to inputs used in the manufacture of such exempted final product The exempt product manufactured by the assessee fell in sub-clause (vi) of Rule 6(3)(a). The assessee was therefore entitled to avail Cenvat Credit on the duty paid on the final product as long as in respect of inputs used in manufacturing of exempt goods, he followed the procedure laid down in Rule 6(3)(a). The contention of the Revenue that such reversal of the credit must happen before utilisation of inputs in the manufacture of exempt goods, would not stand in view of the retrospective amendment in Rule 6, which, as noted above, by virtue of introduction of sub-rule (7) permitted the assessee to pay the Cenvat Credit at the time of or even after clearance of the goods. In favour of assessee

Summary

Issues Involved:
1. Eligibility for benefits under Notification 30/2004 C.E.
2. Remand of duty demanded on handling charges.
3. Liability for penalty under Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

1. Eligibility for Benefits under Notification 30/2004 C.E.:
The core issue revolves around whether the respondent-assessee was rightfully allowed benefits under Notification 30/2004 C.E. despite not maintaining separate accounts for raw materials used for goods cleared on payment of duty and without payment of duty. The Department contended that the assessee utilized duty-paid inputs for both exempt and non-exempt final products without maintaining separate accounts, thus not entitled to retain Cenvat Credit on inputs used in exempt products. The Tribunal, however, relied on the decision in Nicholas Piramal I. Ltd. v. CCE, Thane, which established that reversing credit on inputs used in exempt goods before removal equates to no credit being availed. The Tribunal found no justifiable reason to deny the benefit of Notification 30/2004 C.E. since the assessee had reversed the credit before clearance of the final product, thereby setting aside the duty demand and penalty.

2. Remand of Duty Demanded on Handling Charges:
The Tribunal remanded the matter regarding duty demanded on handling charges recovered from buyers to the Commissioner for fresh adjudication. This decision was not contested in detail in the judgment, and the focus remained primarily on the eligibility for benefits under Notification 30/2004 C.E.

3. Liability for Penalty under Section 11AC of the Central Excise Act, 1944:
The Department's appeal included a question on the assessee's liability to pay a penalty of Rs. 1,49,59,729.00 under Section 11AC. However, this question was not pressed by the revenue during the hearing. The Court, therefore, did not entertain this aspect and focused on the remaining issues.

Legal Reasoning and Conclusion:
The Court referenced a similar case, Commissioner of Central Excise v. Ashima Dyecot Ltd., where it was held that reversing Cenvat Credit amounts to payment of duty, and maintaining separate accounts was not necessary if the credit was reversed before clearance. The Court also noted that Rule 6(3) of the Cenvat Credit Rules, 2002-2004 did not mandate maintaining separate accounts, and the retrospective amendment to Rule 6 allowed payment of Cenvat Credit at the time of or after clearance of goods. Consequently, the Court dismissed the Tax Appeal, affirming the Tribunal's decision that the respondent-assessee was entitled to the benefits under Notification 30/2004 C.E., and the reversal of credit before clearance was sufficient compliance with the rules.