2016 (3) TMI 99 - AT - Central Excise

Liability to pay an amount equal to 10% of the value of tractors of engine capacity below 1800 CC when they have availed Cenvat credit of educational cess on common inputs without maintaining separate records - Held that - The Original Authority observed that industrial cess and education cess being paid are in the nature of excise duty only. The appellants have to maintain separate accounts for receipt and consumption of the inputs which are common for different type of tractors. Since the appellants failed to do so they are liable to pay 10% of the total price of exempted final products. First of all, we noticed that in the present case there is no credit of Central Excise duty availed by the appellants on the common inputs. The only credit availed is education cess paid on such common inputs. The final products are of two categories tractors with engine capacity of above 1800 CC or below 1800 CC. Industrial cess is leviable on the tractors with capacity of above 1800 CC. Education cess is payable on such industrial cess. The appellants utilized the credit of education cess availed on inputs to discharge education cess on tractors of above 1800 CC. There is no industrial cess or education cess on the tractors of below 1800 CC. Accordingly they calculated the proportionate credit of education cess availed on common inputs and reversed the same. We find there is no dispute on the fact of such reversal which has been admitted in the show cause notice itself. In spite of such reversal, the appellants were called upon to pay an amount equal to 10% of the total price of exempted tractors invoking Rule 6 (3) (b) of the Cenvat Credit Rules, 2004. We find such a demand is not legally sustainable as already held in various decisions of this Tribunal and as affirmed by the Hon ble Supreme Court. - Decided in favour of assessee

Summary

Issues:
1. Liability to pay 10% of the value of exempted tractors under Rule 6 of Cenvat Credit Rules, 2004 for availing Cenvat credit of education cess on common inputs without maintaining separate records.

Analysis:
The case involved an appeal against an order of the Commissioner of Central Excise regarding the liability of the appellants, engaged in manufacturing tractors, to pay 10% of the value of exempted tractors under Rule 6 of the Cenvat Credit Rules, 2004. The appellants were availing Cenvat credit of education cess on common inputs used in manufacturing tractors exempted from excise duty. The issue was whether the appellants, who did not maintain separate accounts for tractors with different engine capacities, were liable to pay the aforementioned amount. The Original Authority confirmed a demand and imposed a penalty on the appellants, leading to the appeal.

The appellant's counsel argued that the demand was legally unsustainable as they had not taken any credit of excise duty on the inputs. They had reversed the proportionate credit of education cess for tractors below 1800 CC, which do not attract industrial cess. The appellants maintained that this reversal was sufficient compliance with Rule 6, citing various case laws in support of their position. On the other hand, the authorized representative for the respondent contended that the impugned order correctly invoked Rule 6 (3) (b) due to the appellants' failure to maintain separate accounts as required.

After hearing both sides and examining the records, the Tribunal found that the demand for 10% of the value of exempted tractors was not legally sustainable. The appellants had only availed education cess credit on common inputs, not excise duty credit. They had reversed the proportionate credit for tractors below 1800 CC, as admitted in the show cause notice. The Tribunal referenced various judicial decisions, including one by the Hon'ble Supreme Court, to support its conclusion that the reversal of credit subsequent to the clearance of final products was sufficient compliance with Rule 6. The Tribunal set aside the impugned order, allowing the appeal based on the legal position established in the judicial pronouncements.

In conclusion, the Tribunal held that the demand for 10% of the value of exempted tractors under Rule 6 of the Cenvat Credit Rules, 2004 was not legally sustainable in this case. The appellants' reversal of credit for tractors below 1800 CC after clearance of final products was deemed compliant with the rule, as supported by various judicial decisions. The impugned order was set aside, and the appeal was allowed.