2007 (7) TMI 173 - AT - Central Excise

Inputs used in both dutiable & non-dutiable goods - separate accounting of all inputs (except the two items) was being made - shows that the assessee s intention was to account inputs separately no suppression so matter remanded as to whether and how lubricating and transformer oils are to be separately accounted/allocated proportionately and to revise the demand suitably GTA service - credit has been taken in relation to outward transport of final products but it is not available

Summary

Issues:
1. Interpretation of Rule 6 of the Cenvat Credit Rules regarding the obligation of a manufacturer producing both dutiable and exempted goods.
2. Dispute over maintaining separate accounts for inputs used in the manufacture of exempted goods.
3. Allocation of Cenvat credit for inputs like lubricating and transformer oils used in machinery producing both dutiable and exempted goods.
4. Correctness of interest demand by the Commissioner.
5. Cenvat credit of service tax paid in goods transport and penalty imposition.

Analysis:

Issue 1: Interpretation of Rule 6
The main dispute in the appeals revolved around the interpretation of Rule 6 of the Cenvat Credit Rules, which deals with the obligation of a manufacturer producing both dutiable and exempted goods. Sub-rules (1), (2), and (3) of Rule 6 were analyzed to determine the eligibility of Cenvat credit based on the quantity of inputs used in the manufacture of exempted goods.

Issue 2: Separate Accounts for Inputs
The appellant had maintained separate accounts and inventory for most inputs used in the production of dutiable and exempted goods. However, there was a lack of separate accounts for lubricating and transformer oils. The dispute arose when the revenue authorities demanded payment for exempted goods cleared due to the absence of separate accounts for these specific inputs.

Issue 3: Allocation of Cenvat Credit
The contention was whether it was feasible to allocate inputs like lubricating and transformer oils, which were used in machinery producing both dutiable and exempted goods. The appellant argued that it was impractical to allocate these common inputs product-wise and that demanding payment based on sub-rule 3(b) of Rule 6 would be contrary to the facts of the case.

Issue 4: Correctness of Interest Demand
One of the appeals raised a concern regarding the interest demand made by the Commissioner, arguing that it was incorrect and needed to be increased. The correctness of this interest demand was a point of contention in the proceedings.

Issue 5: Cenvat Credit of Service Tax
Another issue involved the Cenvat credit of service tax paid for goods transport. The Tribunal confirmed the demand on account of service tax but set aside the penalty imposed, stating that the demand was raised during the normal period and did not warrant a penalty as the dispute was purely legal in nature.

Overall, the Tribunal set aside the impugned orders related to the Cenvat dispute on lubricating and transformer oils, remitting the cases to the original authority for a fresh decision on their allocation. The judgment highlighted the importance of maintaining separate accounts for inputs and correctly allocating Cenvat credit based on the rules outlined in the Cenvat Credit Rules.