2018 (10) TMI 1784 - AT - Central Excise

CENVAT Credit - inputs used in manufacture of both dutiable as well as exempt goods - failure to maintain separate set of accounts - rule 6 of CENVAT Credit Rules 2004 - HELD THAT - The demand to the extent of CENVAT credit that had not been availed on inputs used for manufacture of exempted goods but entitled subject to discharge of liability at the prescribed rate under rule 6(3) CENVAT Credit Rules 2004 is not deniable. The acceptance of the liability and the utilization of CENVAT consequently available would render the assessee clear of the liability to that extent. The Director of the company would not have derived any particular benefit or have been aware of the requirements of the rules. No evidence has been brought on record of any intention on the part of the respondent-Director to evade any liability or of having taken any steps to facilitate such evasion. The appeal of the assessee is allowed to the extent of confirmation of demand of 11, 79, 366/- and limiting of the penalty to that extent - Appeal allowed in part.

Issues:
1. Availment of CENVAT credit and penalty imposition under Central Excise Act, 1944.
2. Compliance with maintaining separate set of accounts for dutiable and exempt goods.
3. Appeal against penal provisions and delay condonation.
4. Failure to maintain records and imposition of penalty.
5. Availment of CENVAT credit on inputs for manufacturing exempted products.
6. Imposition of penalty within statutory limitations.
7. Denial of CENVAT credit on inputs used for manufacturing exempted goods.
8. Liability of the director and justification for dropping proceedings.

Analysis:

1. The case involved a dispute regarding the availment of CENVAT credit by a company manufacturing 'stitch bonded fabric' under the Central Excise Act, 1944. The Commissioner of Central Excise had issued an order seeking recovery of a significant amount along with interest and penalty for failure to maintain separate accounts for inputs used in manufacturing both dutiable and exempt goods.

2. The company had demonstrated compliance with maintaining separate records for a specific period, leading to the dropping of demands for that period. The contention was that the CENVAT credit was limited to the consumption in the manufacture of dutiable goods only, as accepted by the original authority.

3. The Revenue appealed against the dropping of penal provisions and sought condonation for a significant delay in filing the appeal. The delay was attributed to a procedural mistake, which was deemed acceptable, and the appeal was considered for disposal along with the company's appeal.

4. The failure to maintain records was established, leading to the imposition of a penalty of 10% of the sale price of the exempted final product. The appeal by the Revenue contended that the Director should not have been excluded from the penal provisions.

5. It was found that the company had not initially taken credit for duty paid on inputs for manufacturing 'stitch bonded glass fibre fabrics.' The subsequent appropriation of credit during an investigation highlighted a lack of item-wise ascertainment of input utilization for exempted products, leading to additional liabilities.

6. The imposition of penalties was discussed within the statutory limitations, and it was determined that penalties should be restricted to the recoverable amount, not the total liability for which CENVAT credit was availed.

7. The judgment confirmed that the denial of CENVAT credit on inputs used for manufacturing exempted goods was not justified, subject to the discharge of liability at the prescribed rate under the CENVAT Credit Rules, 2004.

8. The liability of the director was evaluated, considering the circumstances and lack of evidence indicating intentional evasion. The order justified dropping proceedings against the director, leading to the dismissal of the Revenue's appeal and allowing the company's appeal to a limited extent.

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