2014 (8) TMI 221 - AT - Central Excise

Denial of CENVAT Credit - appellant availed credit of duty paid on Liquid Nitrogen and LDO used in the manufacture of both dutiable and exempted final products but used to reverse input credit in respect of these common inputs on input-output basis whenever they cleared exempted final product from their factory - Held that - Appellant has reversed CENVAT Credit proportionate to inputs used in the manufacture of exempted final product as and when removed from the factory - If the fact of reversal of Cenvat credit attributable to the inputs which are used in the manufacturing of exempted goods is undisputed we find that the issue is now squarely covered by the retrospective amendment of the Cenvat Credit Rules by the Finance Act 2010 which contemplates for reversal of Cenvat credit attributable to the inputs which are used in the manufacturing of exempted goods. impugned order confirming the demands of an amount equivalent to 8%/10% of the value of the exempted goods is incorrect and unsustainable and hence liable to be set aside - Following decision of Unimed Technologies Ltd. Vs. Commissioner of Central Excise Vapi 2012 (11) TMI 820 - CESTAT AHMEDABAD - Decided in favour of assessee.

Summary

Issues:
- Interpretation of Rule 57AD of Central Excise Rules 1944 and Rule 6(3) of the CENVAT Credit Rules 2001 regarding maintaining separate accounts for inputs used in the manufacture of exempted final products.
- Applicability of the practice of reversing credit of inputs on an input-output basis for exempted final products.
- Justification of the demand raised by the Department based on the failure to maintain separate accounts for certain inputs.

Analysis:
1. Interpretation of Rules 57AD and 6(3):
The appellant argued that as per the rules, separate accounts need not be maintained for inputs used as fuel in the manufacture of both dutiable and exempted final products. They highlighted that they maintained separate accounts for substantially used inputs like Potassium Chloride and Sodium Metal for exempted final product. The appellant cited various case laws to support their argument.

2. Practice of Reversing Credit of Inputs:
The appellant's practice of reversing credit of inputs (Liquid Nitrogen & LDO) used in the manufacture of exempted final products on an input-output basis was challenged by the Department. The appellant contended that this practice did not amount to not taking credit on the inputs used in the manufacture of exempted final products. They provided details of the CENVAT Credit availed and reversed for these inputs.

3. Department's Demand and Penalty:
The Department issued a show cause notice to the appellant for not maintaining separate accounts of inputs used in the manufacture of exempted final products. The demand raised was based on Rule 57AD of Central Excise Rules 1944 and Rule 6(3) of the CENVAT Credit Rules 2001. The Commissioner (Appeals) upheld the demand but reduced the penalty. The revenue argued that the appellant was required to pay 8% as per the rules. However, the Tribunal noted that the appellant had reversed the CENVAT Credit proportionate to inputs used in the manufacture of exempted final products, similar to a previous case.

4. Tribunal's Decision:
The Tribunal found that the appellant's practice of reversing CENVAT Credit attributable to inputs used in the manufacture of exempted final products was in line with the retrospective amendment of the CENVAT Credit Rules. The Tribunal referred to a previous decision involving similar circumstances and concluded that the demand raised by the Department was incorrect and unsustainable. The appeal was allowed, setting aside the order of the first appellate authority.

In conclusion, the Tribunal's decision favored the appellant, emphasizing that their practice of reversing credit for inputs used in the manufacture of exempted final products was compliant with the rules. The judgment highlighted the importance of following established procedures and legal interpretations in such cases.