2016 (11) TMI 775 - AT - Central Excise

Demand - maintenance of separate records in respect of receipt, Consumption and inventory of Furnace oil used in the manufacture of dutiable final products and exempted final products i.e. Maaza as per Rule 6(2) of the Cenvat Credit Rules, 2004 - whether under Rule 6(3)(b) of the Credit Rules, the respondent is required to pay 10% of the total price of the exempted goods clear by them? - Held that - the contention of the respondent throughout the investigation is that they are not availing cenvat credit on furnace oil used in manufacture of exempted final product as per formula calculated by them. This fact has not been contraverted by the Revenue with any tangible evidence, moreover, the Ld. Commissioner (A) has held that during the proceedings have observed that the respondent is not availing the cenvat credit on furnace oil used in manufacture of final exempted product as per the formula and dropped the proceedings. In that circumstance, reliance placed on the decision of Cadila Healthcare Ltd. 2009 (8) TMI 892 - CESTAT AHMEDABAD where it was held that no credit stand taken in respect of that part of dutiable furnace oil which has been used in the manufacture of exempted products. The demand at the rate of 10% of value of such exempted products is not called for. Demand not sustainable - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether the respondent is required to pay 10% of the total price of the exempted goods due to not maintaining separate records for the use of furnace oil in the manufacture of dutiable and exempted final products as per Rule 6(3)(b) of the Cenvat Credit Rules, 2004.

Analysis:
The case involved a dispute where the Revenue issued a show cause notice to the respondent for not maintaining separate records of the use of furnace oil in the manufacturing process of dutiable and exempted final products. The respondent argued that they were not availing cenvat credit on the furnace oil used in the manufacture of exempted final products, as they had a specific formula to determine the quantity used for dutiable goods. The Ld. Commissioner held that the demand was not sustainable as the respondent was not availing credit on the furnace oil used in exempted products. The Ld. AR for the Revenue contended that the notice did not follow the prescribed procedure and the respondent should pay 10% of the total price of the exempted final product.

The Ld. Counsel for the respondent argued that they had intimated the department about their method of calculating cenvat credit on furnace oil, and they were not required to pay 10% of the exempted goods as they maintained specific records and only availed credit on the oil used for dutiable goods. The Ld. Commissioner (A) held that the respondent complied with Rule 6 of the Cenvat Credit Rules, 2004, and was not liable to pay the 10% amount. The respondent's position was supported by the decision in Chandrapur Magnet Wires (P) Ltd. V, CCE, 1996 (81) ELT 3(SC).

The Tribunal, after hearing both parties, found that the respondent indeed did not avail cenvat credit on the furnace oil used in the manufacture of exempted final products, as per their calculated formula. Citing the decision in Cadila Healthcare Ltd. and Nicholas Piramal (India) Ltd., the Tribunal held that even if the credit was availed for dutiable goods, as long as the proportionate credit was reversed for exempted products, there was no basis for invoking Rule 6(3)(b). Consequently, the Tribunal set aside the demand for 10% of the value of exempted products, ruling in favor of the respondent.

In conclusion, the Tribunal upheld the decision that the demand was not sustainable against the respondent, and the proceedings were dropped. The appeal filed by the Revenue was dismissed, and the impugned order was upheld.