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2017 (5) TMI 179 - AT - Central ExciseReversal of cenvat credit u/s 6 of CCR - removal of packing material separately without payment of duty - Whether the appellant are not required to pay 10% of the value of exempted goods - the appellant have reversed proportionate Cenvat Credit availed on input services attributable to final exempted goods - Difference of opinion The matter be placed before the Hon ble President to appoint 3rd Member to resolve the issue.
Issues Involved:
1. Whether the appellant is duty-bound not to pay duty under Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006 and consequently, whether the appellant is not entitled to avail credit. 2. Whether the appellant is liable to pay 10% of the value of exempted goods or not. Issue-wise Detailed Analysis: Issue No.1: The appellant is engaged in the activity of packing/repacking and labelling/re-labelling of imported footwear, which amounts to manufacture as per section 2(f)(iii) of the Central Excise Act, 1944. The Revenue contends that under section 5A(1A) of the Act, as the goods have been exempted, the appellant is not required to pay duty on such goods, and thus, the appellant is not entitled to avail credit. However, the exemption under Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006 is conditional, not absolute. According to the Tribunal's decision in Balkrishna Paper Mills Ltd., a manufacturer will not have an option to pay duty only where the goods are exempt and the exemption granted is absolute. Since the exemption in this case is conditional, the appellant is not bound by section 5A(1A) to abstain from paying duty. Consequently, the appellant has correctly paid duty on the goods, and the credit cannot be denied. Therefore, the demand of ?1,96,83,096/- is not sustainable and is set aside. Issue No.2: The demand of ?47,84,763/- arises from the appellant manufacturing both dutiable and exempted final products and availing credit on inputs and input services without maintaining separate accounts. The appellant claims that packing/repacking and labelling/re-labelling were done in separate godowns and that no credit was taken on the packing material used for exempted goods. Invoices were produced for verification, and proportionate credit on common input services was reversed. The Tribunal in Dr. Writer's Food Products Pvt. Ltd. held that reversing the credit of inputs used for exempted goods amounts to not taking the credit. Therefore, the appellant is not liable to pay 10% of the value of exempted goods, and the demand of ?47,84,763/- is set aside. Separate Judgment by Member (Technical): Member (Technical) disagrees with Member (Judicial) on Issue No.2. The appellant's claim that exempted and dutiable goods were manufactured in separate premises is not supported by evidence. The authorized signatory's statement indicates that all functions related to imported footwear were carried out at the registered premises and godown. The appellant failed to produce statutory records to support their claim. The appellant also admitted to availing credit on input services used for both dutiable and exempted goods without maintaining separate accounts. Therefore, the appellant is required to pay 10% of the value of exempted goods. The extended period of limitation applies for November 2004 to June 2005 due to non-disclosure of details to the Department. The demand of Cess @ 2% is a consequence of law and should be realized. The matter is remanded to the adjudicating authority for quantification and compliance. Difference of Opinion: The matter is placed before the Hon'ble President to resolve whether the appellant is required to pay 10% of the value of exempted goods based on the evidence provided and the reversal of proportionate credit on input services.
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