2016 (10) TMI 474 - AT - Central Excise

Denial of CENVAT credit - demand of duty along with interest and penalty - production of exemption certificate - clearance of exempted as well as dutiable products as per Rule 6 of the CENVAT Credit Rules, 2004 - Held that - the Revenue has failed to appreciate the fact that inputs are available for credit at the time of start of manufacture of the goods. There is a great difference between manufacture and their clearance. In this case manufacturing process started much earlier before the date when the exemption certificate was obtained by M/s GMADA. Prior to obtaining the exemption certificate, the character of final manufactured goods was dutiable, in that circumstances, the CENVAT credit availed by the appellant is in accordance of law. The same view was taken by Hon ble High Court of Bombay in the case of CCE, Thane I vs. Nicholas Piramal (India) Ltd. 2009 (8) TMI 224 - BOMBAY HIGH COURT . The appellant has paid an amount of 6% of the value of exempted final product at the time of clearance of final exempted product by utilizing their CENVAT credit account. The Adjudicating Authority has not considered the fact that CENVAT credit to the extent of 6% of the value of exempted final product has already been reversed and the set off the same has granted which reveals that the demand to the extent of reversal 6% of the value of exempted goods twice taxing the appellants which not is permissible in law. M/s WCL availed CENVAT credit on the inputs for manufacturing of their final product before production of exemption certificate by M/s GMADA, the appellant has rightly availed CENVAT credit on inputs - demand of duty, interest and penalty not justified - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of Cenvat Credit on inputs used for manufacturing exempted goods.
2. Compliance with Rule 6 of the Cenvat Credit Rules, 2004.
3. Validity of the demand for reversal of Cenvat Credit and imposition of penalties.

Issue-wise Detailed Analysis:

1. Eligibility of Cenvat Credit on inputs used for manufacturing exempted goods:
The appellants, M/s Welspun Corporation Limited (WCL) and M/s Welspun Project Limited (WPL), were involved in the manufacture of pipes. The case arose when WCL received an order from WPL, which was contingent upon GMADA obtaining an exemption certificate under Notification No. 12/2012-CE. Initially, WCL started manufacturing pipes without knowing whether the final goods would be exempted or dutiable. Upon obtaining the exemption certificate, WCL cleared the pipes without payment of duty but reversed 6% of the value of exempted goods as per Rule 6(3) of the Cenvat Credit Rules, 2004. The tribunal found that at the time of procurement of inputs, the final goods were considered dutiable, and thus, Cenvat Credit was rightly availed by WCL.

2. Compliance with Rule 6 of the Cenvat Credit Rules, 2004:
The tribunal examined whether WCL complied with Rule 6(3) of the Cenvat Credit Rules, 2004, which mandates maintaining separate accounts for inputs used in dutiable and exempted goods or paying a specified percentage of the value of exempted goods. WCL did not maintain separate accounts but reversed 6% of the value of exempted goods. The tribunal held that this compliance was sufficient under Rule 6(3), as supported by precedents like CCE, Thane - I vs. Nicholas Piramal (India) Ltd. and Sobha Developers Ltd. vs. CCE, LTU, Bangalore.

3. Validity of the demand for reversal of Cenvat Credit and imposition of penalties:
The Revenue's contention was that WCL was manufacturing only exempted goods until 05/11/12 and thus was not entitled to Cenvat Credit. However, the tribunal noted that manufacturing started before the exemption certificate was obtained, and the goods were initially considered dutiable. The tribunal also highlighted that WCL had cleared goods on payment of duty on 05/11/12, indicating that the manufacturing process included both dutiable and exempted goods. Consequently, the demand for reversal of Cenvat Credit and the imposition of penalties were found to be without merit. The tribunal emphasized that the reversal of 6% of the value of exempted goods already accounted for compliance, preventing double taxation.

Conclusion:
The tribunal concluded that WCL had rightly availed Cenvat Credit on inputs used for manufacturing pipes before the exemption certificate was obtained. The compliance with Rule 6(3) by reversing 6% of the value of exempted goods was deemed appropriate. The impugned order was set aside, and the appeals were allowed with consequential relief. The detailed analysis and references to various judicial precedents reinforced the tribunal's decision, ensuring that the legal principles were correctly applied.