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2014 (12) TMI 658 - HC - Central ExciseCENVAT Credit - Credit taken on all inputs including inputs exclusively used in the manufacture of exempted final products contrary to the provisions of Rule 6(1) of CENVAT Credit Rules 2004 - Non maintenance of separate accounts - Held that - Explanation III to sub-rule (3) of Rule 6 is of no avail to the department on the facts of the present case. Therefore, on the first substantial question of law, we concur with the finding of the Tribunal that the first respondent-assessee in this case has shown on facts that the inputs on which CENVAT credit was availed had been used in the manufacture both in respect of exempted goods as well as goods cleared on payment of duty, however, they did not maintain separate account of inputs, which is a pre-requisite in terms of Rule 6(3) and having satisfied the conditions enumerated in the said rule, they are entitled to avail the credit. Assessee has not availed CENVAT credit on the inputs used exclusively in the manufacture of exempted final product. On the contrary, the finding of the Tribunal, which is not disputed by the department, is that the inputs have been used in the manufacture both in respect of exempted goods as well as goods cleared on payment of duty without maintaining separate accounts. Since we have held that it is a case falling under Rule 6(3)(b), Rule 6(1) does not get attracted to the facts of the present case. - Following decision of Life Long Appliances Ltd., v. Commissioner of Central Excise, Delhi-III 2000 (4) TMI 90 - CEGAT, COURT NO. II, NEW DELHI - Decided against Revenue.
Issues Involved:
1. Entitlement to CENVAT Credit on inputs used exclusively in the manufacture of exempted goods. 2. Justification of CESTAT's decision regarding CENVAT Credit on all inputs, including those used exclusively for exempted products, contrary to Rule 6(1) of CENVAT Credit Rules 2004. 3. Appropriateness of applying the judgment in Hetero Labs Ltd. v. Commissioner of Central Excise, Hyderabad, given the distinct facts of the case and the pending finality of the said decision. Detailed Analysis: Issue 1: Entitlement to CENVAT Credit on Inputs Used Exclusively in the Manufacture of Exempted Goods The first respondent-assessee manufactures gear motor assemblies, some of which are supplied to M/s NEPC India Limited and are exempted from duty under specific notifications. The department alleged that the assessee wrongly availed CENVAT Credit on inputs used in the manufacture of these exempted goods, violating Rule 6(1) of the CENVAT Credit Rules, 2004. The Commissioner of Central Excise upheld this view, except for a minor amount, asserting that 16 out of 19 inputs were exclusively used for exempted goods, thus necessitating the reversal of CENVAT credit under Rule 6(1). Issue 2: Justification of CESTAT's Decision The Tribunal found that the assessee did not maintain separate accounts for inputs used in exempted and dutiable goods. Instead, they paid 8% or 10% of the sale price of exempted goods as per Rule 6(3)(b) of the CENVAT Credit Rules. The Tribunal concluded that the inputs were used in both exempted and dutiable goods, thus falling under Rule 6(3)(b), which allows the assessee to avail CENVAT credit if they pay the specified amount. The Tribunal's interpretation was that Rule 6(3) overrides Rule 6(1) when separate accounts are not maintained, provided the conditions of Rule 6(3)(b) are met. Issue 3: Appropriateness of Applying Hetero Labs Ltd. Judgment The Tribunal relied on the decision in Hetero Labs Ltd. v. Commissioner of Central Excise, Hyderabad to support its interpretation. The Tribunal held that Explanation III to sub-rule (3) of Rule 6, which clarifies that credit is not allowed on inputs used exclusively for exempted goods, did not apply since the inputs were used for both exempted and dutiable goods. The High Court agreed with this reasoning, stating that the Tribunal's reliance on Hetero Labs was appropriate and that the decision had been upheld by the Supreme Court in a similar context. Conclusion: 1. Entitlement to CENVAT Credit: The Tribunal found that the inputs were used in both exempted and dutiable goods, and since the assessee paid the required amount under Rule 6(3)(b), they were entitled to CENVAT credit. The High Court concurred with this finding, answering the first question of law in favor of the assessee. 2. Justification of CESTAT's Decision: The High Court upheld the Tribunal's decision that Rule 6(1) did not apply because the inputs were used for both categories of goods, and the assessee had complied with Rule 6(3)(b). Thus, the second question of law was also answered in favor of the assessee. 3. Application of Hetero Labs Judgment: The High Court found the third question of law to be misconceived, noting that the Tribunal's decision in Hetero Labs had been upheld by the Supreme Court. Hence, this question did not survive. Final Judgment: The civil miscellaneous appeal was dismissed, and the Tribunal's decision was upheld, with all substantial questions of law answered against the Revenue and in favor of the assessee.
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