2008 (8) TMI 260 - AT - Central Excise

Common inputs (like phosphoric acid, caustic soda and boiler water treatment chemicals) used in manufacture of dutiable (sugar, molasses and ethyl alcohol) as well as exempted (cattle feed) goods non-maintenance of separate accounts phosphoric acid, caustic soda and boiler water treatment chemicals are the only common inputs and molasses is only an intermediate product. Molasses cannot be considered as common input as has been contented by the appellants demand of 8% of value of exempted goods is justified

Summary

Issues:
1. Applicability of Cenvat credit rules for manufacturing dutiable and exempted goods.
2. Interpretation of common inputs and separate account maintenance.
3. Adjudication of duty demand, interest, and penalty under Cenvat Credit Rules.

Analysis:
1. The case involved the appellants engaged in manufacturing dutiable goods like sugar, molasses, and ethyl alcohol, along with exempted goods like cattle feed falling under Chapter No. 23, exempted under Notification No. 10/96. The issue arose when the appellants availed Cenvat credit for inputs used in manufacturing, including common inputs like phosphoric acid, caustic soda, and boiler water treatment chemicals, without maintaining a separate account for exempted goods. The show cause notice demanded duty, interest, and penalty under Rule 12 and Rule 13 of the Cenvat Credit Rules, 2002.

2. The appellant argued that only molasses should be considered a common input for manufacturing animal feed, not the other chemicals, as molasses was exempted under Notification No. 10/96. Conversely, the Departmental Representative contended that the common inputs were the chemicals, not molasses, and thus, Cenvat credit reversal of 8% was necessary since no separate account was maintained for these chemicals. The Tribunal found that the appellants did not maintain a separate account for phosphoric acid, caustic soda, and boiler water treatment chemicals, which were the actual common inputs, rejecting the appellant's claim that molasses alone qualified as a common input.

3. The Tribunal upheld the Commissioner (Appeals) decision to demand duty, interest, and impose a penalty on the appellants under Rule 13(1) of the Cenvat Credit Rules, 2002. The Tribunal concluded that since the appellants failed to maintain a separate account for the common inputs other than molasses, the Cenvat credit reversal of 8% was justified, affirming the demand raised in the show cause notice. The appeal by the appellants against the order was rejected by the Tribunal, confirming the duty amount, interest, and penalty imposed by the Commissioner (Appeals).

This detailed analysis highlights the key aspects of the judgment, including the interpretation of common inputs, application of Cenvat credit rules, and the decision on duty demand, interest, and penalty under the Cenvat Credit Rules, providing a comprehensive understanding of the legal issues involved.