2014 (1) TMI 114 - AT - Central Excise

Reversal of cenvat credit No separate accounts maintained Held that - As per the Board s circular, the manufacturer may take credit or duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid - This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products - Apart from the fact that there are various decision of the Tribunal laying down that wherever the Cenvat Credit stand reversed by the assessee, the provisions of Rule 6 (3)(b) of Cenvat Credit Rule, 2002 would not apply - the law now stands amended retrospectively laying down that if an assessee reverses the Modvat Credit in respect of inputs used in the manufacture of final exempted product, there is no need for payment of 10% of amount of value of the exempted products Assessee has admittedly reversed the credit Decided against Revenue.

Issues:
1. Maintenance of separate records for inputs used in the manufacture of dutiable and exempted goods.
2. Requirement to pay duty on exempted goods due to lack of separate records.
3. Reversal of input credit and its impact on duty payment.
4. Interpretation of Cenvat Credit Rules, 2002 regarding exemption of duty on final exempted products.
5. Applicability of Rule 6(3)(b) of Cenvat Credit Rules, 2002.

Issue 1: Maintenance of Separate Records:
The case involved a manufacturer of branded and unbranded Vanaspati and Refined Oil who failed to maintain separate records for inputs used in the manufacture of dutiable and exempted goods. This non-compliance led to a demand for payment of 8% of the value of exempted goods cleared during a specific period.

Issue 2: Requirement to Pay Duty on Exempted Goods:
The appellants were required to pay an amount equal to 8% of the total price of exempted final products cleared by them, as they did not maintain separate records for inputs used in the manufacture of exempted goods. The authorities confirmed the demand, along with interest and penalties, based on the lack of proper record-keeping.

Issue 3: Reversal of Input Credit:
The Respondent reversed input credit of Rs. 18,000 pertaining to inputs used in the manufacture of exempted goods. This reversal was accepted by the jurisdictional Asstt. Commissioner, supporting the argument that such reversal should be treated as if the Cenvat Credit was never taken.

Issue 4: Interpretation of Cenvat Credit Rules:
The Commissioner (Appeals) analyzed the case records and noted that while the assessee did not maintain separate accounts for dutiable and duty-free goods as required, a departmental circular clarified that in certain situations where segregation of inputs is not reasonably possible, the manufacturer may take credit of duty paid on all inputs used in the manufacture of exempted products.

Issue 5: Applicability of Rule 6(3)(b) of Cenvat Credit Rules:
The Tribunal observed that various decisions had established that if the assessee reverses the Modvat Credit for inputs used in the manufacture of exempted products, the provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2002 would not apply. Additionally, the law was amended retrospectively to exempt payment of 10% of the value of exempted products if the credit is reversed, leading to the rejection of the Revenue's appeals.

In conclusion, the judgment addressed the importance of maintaining separate records for inputs used in the manufacture of dutiable and exempted goods, the requirement to pay duty on exempted goods in the absence of proper records, the impact of reversing input credit on duty payment, the interpretation of Cenvat Credit Rules regarding exemption of duty on final exempted products, and the applicability of Rule 6(3)(b) of Cenvat Credit Rules, 2002. The decision favored the Respondent based on the reversal of input credit and the retrospective amendment exempting payment of 10% of the value of exempted products in such cases.

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