2016 (8) TMI 387 - AT - Central Excise

Reversal of cenvat credit - Rule 6(3) read with Rule 6(3A) of CENVAT Credit Rules (CCR), 2004 - clearance of two cranes at nil rate of duty - availed benefit of Notification No.33/2005-C.E. dated 8.9.2005 as amended vide Notification No.38/2005-C.E dated 30.12.2005 - not maintained separate books of accounts and also did not exercise the option as provided in Rule 6(3) read with Rule 6(3A) of the CCR, 2004. Held that - admittedly there is no intimation given by the appellant informing the exercise of his option. The argument of the Department is that when the appellant has not intimated his option in writing then the appellant is bound to pay the duty amount calculating under the first option. According to me, this argument is devoid of merit, because the said Rule does not say anywhere that on failure to intimate, the manufacturer/service provider would lose his right to avail second option of reversing the proportionate credit. Sub-Rule (3A) is only a procedure contemplated for application of Rule 6(3). Consequently, the argument of Revenue is that the appellants exercising option is mandatory and on its failure, the appellant has no other option but to accept and apply Rule 6(3)(i) and make payment of 5%/10% of the sale price of the exempted goods or exempted services is not acceptable, because the Rule does not lay down any such restriction and this has been held in various judgments. It has been held in one judgment that the condition in Rule 6(3A) to intimate the Department is only a procedural one and that such procedural lapse is condonable and denial of substantive right on such procedural failure is unjustified. Therefore, the demand raised by the Revenue is not legal and proper. Moreover, the demand raised by the Revenue is also hit by limitation as the appellant reversed the pro-rata credit with interest on 31.7.2010 itself and communicated to the Department whereas the show-cause was issued only on 13.3.2012 which is beyond the period of one year and the allegation of the Department regarding suppression of fact is also not tenable because the appellant has disclosed these facts in their periodical ER1 returns filed by them. Therefore, the impugned order is not sustainable on merit as well as on limitation and therefore, set aside. - Decided in favour of assessee

Summary

Issues:
1. Appeal against Order-in-Appeal setting aside Order-in-Original.
2. Interpretation of Rule 6(3) of CENVAT Credit Rules, 2004.
3. Application of precedents and case laws.
4. Allegation of suppression and limitation period.
5. Obligation of manufacturer of dutiable and exempted goods.
6. Requirement to maintain separate accounts under Rule 6.
7. Intimation requirement for exercising option under Rule 6(3A).

Analysis:

1. The appeal was filed against the Order-in-Appeal that set aside the Order-in-Original passed by the Commissioner of Central Excise (Appeals). The case involved a partnership concern engaged in the manufacture of cranes and other related equipment, clearing goods at nil rate of duty under specific notifications.

2. The crux of the issue revolved around the interpretation of Rule 6(3) of the CENVAT Credit Rules, 2004. The appellant faced a demand for payment under Rule 6(3) due to alleged non-maintenance of separate accounts and failure to exercise the option provided in the rule. The appellant argued that the impugned order misinterpreted Rule 6(3) and cited precedents to support their case.

3. The appellant relied on various case laws, including a decision by the Hon'ble CESTAT, Hyderabad, to argue that the impugned order disregarded binding principles established in previous judgments. The appellant contended that the demand, interest, and penalties imposed were beyond the limitation period and based on incorrect interpretation of Rule 6.

4. The issue of suppression and the limitation period was crucial in the case. The appellant asserted that there was no suppression of facts as the clearance of goods was disclosed in their periodic returns. The appellant highlighted that the show-cause notice was issued beyond the normal limitation period, rendering the demand unsustainable.

5. Rule 6 of the CENVAT Credit Rules imposes obligations on manufacturers of dutiable and exempted goods. It outlines conditions for maintaining separate accounts when using common inputs for both types of goods and provides options for compliance, including payment based on sale price or reversal of credit.

6. The judgment analyzed the provisions of Rule 6, emphasizing the requirement to maintain separate accounts when using common inputs for dutiable and exempted goods. It clarified the options available to manufacturers/service providers under Rule 6(3A) and the necessity of intimating the department when exercising such options.

7. The judgment highlighted the importance of complying with procedural requirements, such as intimating the department when exercising options under Rule 6(3A). It concluded that the failure to provide written intimation did not automatically disqualify the appellant from availing the second option of reversing proportionate credit, as the rule did not mandate such a consequence.

In conclusion, the appellate tribunal set aside the impugned order, ruling in favor of the appellant based on the incorrect interpretation of Rule 6, the absence of suppression of facts, and the violation of the limitation period for issuing the show-cause notice.