2018 (3) TMI 745 - AT - Central Excise

Penalty - CENVAT credit - goods cleared to the developer of a Special Economic Zone (SEZ) - non-maintenance of separate records of inputs/input service used in common for manufacturing of dutiable goods and exempted goods - Held that - The exclusion provision in rule 6 of CENVAT Credit Rules 2004 is restricted to goods that are cleared for export or such as are deemed to have been exported under the Foreign Trade Policy or any other enactment. In so far as Special Economic Zone Act 2005 is concerned there is no distinction between supply of the goods to a unit or to a developer. Penalty u/s 11AC - Held that - The decision of the Hon ble High Court of Andhra Pradesh in the case of Sujana Metals Products Ltd. 2015 (3) TMI 781 - ANDHRA PRADESH HIGH COURT has held that the scope of amendment to rule 6 of CENVAT Credit Rules, 2004 and its applicability being subject to interpretation precluded the invoking of the extended period of limitation. The ingredients for the extended period of limitation are the same as that justifying the invoking of section 11AC of Central Excise Act, 1944 - penalty set aside. Appeal dismissed - decided against Revenue.

Summary

Issues:
Appeal against order setting aside demand for 10% value of goods cleared to SEZ developer for not maintaining separate records of inputs/input services.

Analysis:
The appeal was filed by the Revenue against the order-in-appeal of the Commissioner of Central Excise (Appeals), Mumbai II, dated 4th June 2015, which set aside the demand confirmed by the original authority. The issue revolved around the demand of 10% of the value of goods cleared to the developer of a Special Economic Zone (SEZ) by invoking rule 6(3) read with rule 14 of CENVAT Credit Rules, 2004 due to the non-maintenance of separate records of inputs/input services used for manufacturing dutiable and exempted goods.

The case against the respondent was that the supplier of goods to SEZ developers was not exempt from the obligation to maintain separate books under rule 6 of CENVAT Credit Rules, 2004 until the amendment on 31st December 2008. The obligation to pay duty of 10% on the value of such clearances was argued to be applicable at the relevant time.

The liability to pay duty was imposed on the respondent based on the argument that the supplies were exempt as export goods but were not covered in the restricted entitlement for waiver under rule 6(5) of CENVAT Credit Rules, 2004. The lower authorities emphasized the mandatory requirement to maintain separate records for input/input services used in common for supplies to SEZ developers and other customers. The exclusion provision in rule 6 was limited to goods cleared for export or deemed to have been exported under relevant policies. Despite the presumption of obligation to pay, section 26 of the Special Economic Zones Act, 2005 entitled exemption from this amount. The respondent did not appeal against the order, and the Revenue's appeal was solely against the waiver of penalty.

The decision of the Hon’ble High Court of Andhra Pradesh in the case of Sujana Metals Products Ltd. highlighted that the interpretation of the amendment to rule 6 of CENVAT Credit Rules, 2004 and its applicability precluded the extension of the limitation period. The appellate authority was justified in setting aside the penalty as the ingredients for the extended period of limitation were similar to those justifying the invoking of section 11AC of the Central Excise Act, 1944. Consequently, the appeal of the Revenue was deemed without merit and dismissed.