2017 (6) TMI 675 - AT - Central Excise

CENVAT credit - CVD and additional duty of customs - footwear - packing/repacking and labelling/re-labelling of imported footwear - Whether as per section 5A (1A) of the Act, the appellant is duty bound not to pay duty under N/N. 6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006 and consequently, the appellant is not entitled to avail credit? - Held that - Bare reading of the said provision indicates that a manufacturer will not have an option to pay duty only where the goods are exempted and the exemption granted is absolute. Admittedly, in this case, the exemption granted N/N. 6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006, is not absolute but conditional - the benefit of notification is optional to the appellant and the appellant is not entitled to avail the benefit of notification, in that circumstance, it cannot be said that the goods are exempted goods. As the goods are not exempted goods, therefore, the appellant has correctly paid duty on the said goods, consequently, the credit cannot be denied to the appellant. Whether in the facts and circumstances of the case, the appellant is liable to pay 10% of the value of exempted goods or not? - Held that - As there is difference of opinion between the members, therefore, 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, not entitled to avail credit.
2. Whether the appellant is liable to pay 10% of the value of exempted goods.

Issue No. 1: Duty Payment and Credit Entitlement

The appellant is engaged in packing/repacking and labelling/re-labelling of imported footwear, which amounts to manufacture under Section 2(f)(iii) of the Central Excise Act, 1944. The dispute centers on whether the appellant is required to pay duty under Notification No.6/02-CE dated 1.3.2002 and 5/06-CE dated 1.3.2006, which exempt the process from duty subject to certain conditions.

The Revenue's position is based on Section 5A(1A) of the Act, asserting that the appellant should not pay duty on exempted goods and thus cannot avail credit. However, the Tribunal found that the exemption under the notifications is conditional, not absolute. Therefore, the appellant has the option to pay duty, making the goods non-exempt. Consequently, the credit cannot be denied. The demand of ?1,96,83,096/- was deemed unsustainable and set aside.

Issue No. 2: Liability to Pay 10% of the Value of Exempted Goods

The appellant was accused of manufacturing both dutiable and exempted products without maintaining separate accounts for inputs and input services, allegedly making them liable to pay 10% of the value of exempted goods. The appellant argued that packing materials were received separately in respective godowns and that they had reversed the proportionate credit on common input services.

The Member (Judicial) found the appellant's claims credible, noting that invoices showed no credit was taken on packing materials used for exempted goods, and proportionate credit on common input services was reversed. Thus, the demand of ?47,84,763/- was set aside.

However, the Member (Technical) disagreed, emphasizing that the appellant failed to provide evidence of separate manufacturing premises and proper records. The Member (Technical) upheld the demand, citing the need for compliance with Rule 6(2) of Cenvat Credit Rules, 2004, and invoking the extended period of limitation due to non-disclosure and improper record-keeping.

Final Decision:

Due to the difference in opinions, the matter was referred to a third member. The third member sided with the Member (Judicial), highlighting the admissible evidence from the appellant's authorized signatory, which contradicted the show cause notice. Consequently, the majority decision set aside the demands proposed in the show cause notice, and the appeal was allowed with consequential relief.

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