2016 (8) TMI 436 - AT - Central Excise

Whether or not the appellants are liable 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 - 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. It is found that 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. Therefore, 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 appellant

Summary

Issues:
1. Liability to pay 10% of the value of exempted tractors under Rule 6 of Cenvat Credit Rules, 2004 due to common inputs usage without separate accounts maintenance.

Analysis:
1. The appeal challenged an order by the Commissioner of Central Excise, Jaipur - I, where proceedings were initiated against the appellants for not maintaining separate accounts for inputs used in manufacturing tractors exempt from excise duty. The appellants were found liable to pay 10% of the value of exempted tractors under Rule 6 of Cenvat Credit Rules, 2004. The appellants contended that they had reversed the proportionate credit of education cess for tractors below 1800 CC, which do not attract industrial cess or education cess. The appellants argued that this reversal was sufficient compliance with Rule 6, supported by various case laws. The Department, on the other hand, argued that the reversal post-clearance of exempted goods did not fulfill the requirements of Rule 6.

2. The Tribunal analyzed the situation and found that the appellants had not availed Central Excise duty credit on common inputs but had utilized education cess credit to pay for tractors above 1800 CC. The appellants had reversed the proportionate credit of education cess for tractors below 1800 CC, as acknowledged in the show cause notice. Despite this reversal, the appellants were asked to pay 10% of the total price of exempted tractors under Rule 6 (3) (b) of the Cenvat Credit Rules, 2004. The Tribunal concluded that this demand was not legally sustainable, citing precedents and the Hon'ble Supreme Court's decision in Chandrapur Magnet Wires (P) Ltd. vs. CCE, Nagpur, emphasizing that the reversal of credit amounted to non-availment.

3. The Tribunal referenced cases like Mercedes Benz India (P) Ltd. vs. CCE, Pune - I and Franco Italian Co. Pvt. Ltd. vs. CCE, Mumbai - II, where it was established that reversal of credit, even after clearance of final products, was sufficient compliance to show that no credit was taken. The Tribunal also highlighted the Hon'ble Supreme Court's decision in CCE & CUS vs. Precot Meridian Ltd., confirming the view that reversal of credit allowed manufacturers to avail exemptions as if the credit was not taken. Based on these legal principles and analyses, the Tribunal concluded that the impugned order was not legally sustainable, setting it aside and allowing the appeal.