2013 (11) TMI 1417 - AT - Central Excise

Invocation of Rule 6(3) of Cenvat credit rules - Separate account and inventory not maintained for dutiable as well as exempted goods Held that - Nowhere in the show cause notices, it is mentioned as to which are the common input or input services in respect of which cenvat credit has been availed and which had been used in or in relation to the manufacture of dutiable and exempted final products - Unless the common inputs and or input services, in respect of which cenvat credit had been availed and which had been used in the manufacture of dutiable and exempted final products are clearly mentioned in the show cause notice, the show cause notice cannot invoke Rule 6(3) of Cenvat Credit Rules and demand an amount to 10% equal to the sale value of the exempted final products. The Rules 6(2) & 6(3) would not apply when some exempted final products emerge as inevitable and unavoidable waste or by-product, as in such a situation, even if the manufacturer wants, he cannot maintain separate account and inventory - Rule 6(2) and 6(3) cannot be construed to impose an obligation on a manufacturer which is imposable to observe and then go on penalise him, by the demands under Rule 6(3) and imposition of penalty Relying upon RALLIS INDIA LTD. Versus UNION OF INDIA 2008 (12) TMI 46 - HIGH COURT BOMBAY - Rule 57 CC of Central Excise Rules, 1944 (which is pari materia with Rule 6(3) of Cenvat Credit Rules, 2004) is not applicable in respect of by-products Decided against revenue.

Summary

Issues:
1. Whether iron ore fines and coal fines are exempted goods fully exempted from duty.
2. Whether the provisions of Rule 6(3) of the Cenvat Credit Rules are applicable due to non-maintenance of separate accounts for dutiable and exempted final products.
3. Whether demands confirmed under Rule 6(3) have been rightly set aside.

Issue 1:
The case involved determining whether iron ore fines and coal fines are exempted goods fully exempted from duty. The Department contended that these fines are manufactured products attracting excise duty, while the Commissioner (Appeals) held that they are not manufactured products. The Tribunal analyzed the nature of iron ore fines and coal fines, concluding that they arise as unavoidable waste in the manufacturing process. The Tribunal referenced legal principles, including the judgment of the Hon'ble Bombay High Court, to support its finding that the fines are exempt from duty. The Tribunal dismissed the Revenue's appeals, upholding the Commissioner (Appeals) decision.

Issue 2:
The next issue revolved around the applicability of Rule 6(3) of the Cenvat Credit Rules due to the non-maintenance of separate accounts for dutiable and exempted final products. The Department argued that since separate accounts were not maintained, demands under Rule 6(3) should be confirmed. However, the Tribunal noted that compliance with Rule 6(2) in such a situation was impossible and unreasonable. Citing legal principles and previous tribunal decisions, the Tribunal held that imposing obligations that are impossible to comply with is not justified. The Tribunal dismissed the Revenue's appeals, emphasizing the impossibility of compliance in this case.

Issue 3:
The final issue centered on whether demands confirmed under Rule 6(3) were rightly set aside. The Department had imposed demands under Rule 6(3) for the clearances of iron ore fines and coal fines. However, the Commissioner (Appeals) had allowed the appeals, leading to the filing of appeals by the Department and cross objections by the respondent. The Tribunal, after considering submissions from both sides and examining the records, upheld the Commissioner (Appeals) decision. The Tribunal dismissed the Revenue's appeals and disposed of the cross objections.

In summary, the Tribunal ruled in favor of the respondent, holding that iron ore fines and coal fines are exempted goods fully exempted from duty. The Tribunal also found that the provisions of Rule 6(3) were not applicable due to the impossibility of maintaining separate accounts for dutiable and exempted final products in the manufacturing process. The Tribunal dismissed the Revenue's appeals and disposed of the cross objections, affirming the decision of the Commissioner (Appeals).