2016 (7) TMI 1146 - AT - Central Excise

Cenvat Credit - common input services - failure to maintain separate accounts for the use of inputs for dutiable as well as exempted products as required under Rule 6 (3) (b) of the Cenvat Credit Rules - Held that - on reversal of the Modvat credit the Assessee cannot be said to have taken credit of duty on the inputs utilized in the manufacture of final products. When this Apex court judgment is applied to the present case the Cenvat credit on common services stand reversed with interest and hence it is to be presumed as not having been taken up initio. In such a case there will be no justification for any demand under Rule 6 (3) (b) of the Cenvat Credit Rules. - Demand set aside - Decided in favor of assessee.

Summary

Issues:
1. Failure to maintain separate accounts for dutiable and exempted goods under Rule 6 (3) (b) of the Cenvat Credit Rules.
2. Dispute regarding demand of over &8377; 80 lakhs along with penalty for availing Cenvat credit on common services.
3. Application of Rule 6 (3) (b) of the Cenvat Credit Rules leading to an unjust demand.
4. Interpretation of the Hon'ble Supreme Court judgment in Chandrapur Magnate Wires (P) Ltd. vs. CCE regarding reversal of Cenvat credit.
5. Consistency of Tribunal decisions in setting aside demands under Rule 6 (3) (b) in similar cases.

Analysis:
1. The appellant, engaged in manufacturing dutiable and exempted goods, availed Cenvat credit on common services without maintaining separate accounts as mandated by Rule 6 (3) (b) of the Cenvat Credit Rules. This led to a dispute arising from the clearance of exempted products valued at nearly &8377; 8 crores in June 2005, resulting in a demand of approximately &8377; 80 lakhs under Rule 6 (3) (b) @ 10% of the value of the exempted goods.

2. The appellant contested the order, arguing that the demand of over &8377; 80 lakhs, along with a penalty, was unjustified for a meager credit of &8377; 14,363. They relied on the Chandrapur Magnate Wires (P) Ltd. vs. CCE judgment, asserting that once the Cenvat credit is reversed, it should be presumed as not taken. The Tribunal has previously allowed appeals in similar cases of unjustified demands.

3. Upon hearing both parties, the Tribunal found that the mechanical application of Rule 6 (3) (b) resulted in an unjust demand. Referring to the Chandrapur Magnate Wires (P) Ltd. vs. CCE judgment, the Tribunal held that when Cenvat credit is reversed, it cannot be considered as taken initially, thus negating the demand under Rule 6 (3) (b). Previous Tribunal decisions, such as CCE, Hyderabad - III vs. Swastik Vegetable Oil Products Ltd., supported this interpretation.

4. The Tribunal emphasized the need to follow legal precedents and avoid unjust demands, citing the Satyakala Agro Oil Products Ltd. vs. CCE case as an example. Consequently, the appeal was allowed, confirming the impugned order of the Commissioner (Appeals) and rejecting the Revenue's appeal for lacking merit.

This comprehensive analysis of the judgment highlights the issues of failure to maintain separate accounts, unjust demands under Rule 6 (3) (b), interpretation of legal precedents, and consistency in Tribunal decisions, leading to the final decision in favor of the appellant.