2007 (11) TMI 129 - AT - Central Excise

Non-maintenance of separate inventory and accounts common inputs for exempted and dutiable products - held that, if a manufacturer has opted to pay to the Revenue such amount (being a percentage of the sale price of the exempted goods) as prescribed under sub-rule (3) of Rule 6 of the Cenvat Credit Rules, 2001/2002/2004, it shall not be necessary for him to reverse any credit taken on inputs which were used in the manufacture of the exempted final product.

Summary

Issues:
- Whether CENVAT credit can be availed on imported components used in manufacturing exempted final products without maintaining separate accounts?
- Whether the appellants are liable to pay duty and penalty for not maintaining separate accounts for inputs used in manufacturing exempted and dutiable final products?
- Whether the appellants are entitled to CENVAT credit for inputs used in manufacturing exempted final products without maintaining separate accounts?

Analysis:
1. The appellants supplied 'gear-motor assembly' to M/s. NEPC India Ltd. without duty payment under specific Notifications, while also supplying the same product to other parties with duty payment. The issue arose when the appellants did not maintain separate accounts for inputs used in manufacturing exempted and dutiable final products. The department contended that CENVAT credit should not have been taken for the CVD paid on imported components used in the exempted final product. Consequently, a demand notice was issued, leading to the Commissioner's order confirming duty demand, interest, and imposing a substantial penalty under the Central Excise Act.

2. The dispute primarily revolved around 18 imported components, with 16 intended for the exempted final product supplied to M/s. NEPC India Ltd. The remaining components were common for both exempted and dutiable final products. The appellants argued that as they did not maintain separate accounts, they were entitled to CENVAT credit and had paid the required amount to the exchequer under Rule 6(3) of the CENVAT Credit Rules. The appellants cited legal precedents to support their position, emphasizing that denial of credit was unwarranted, especially for the period post the amendment to Rule 6(3).

3. The Tribunal considered the appellants' submissions and legal arguments. It was established that the appellants had not opted for separate inventory maintenance and had paid the prescribed percentage of the sale price for the exempted goods. Consequently, the Tribunal ruled in favor of the appellants, setting aside the Commissioner's order for the period from July 2001 to October 2006. The judgment highlighted that when a manufacturer follows the prescribed procedure under Rule 6 of the CENVAT Credit Rules, denial of CENVAT credit on inputs used in manufacturing exempted final products is not warranted.

4. In conclusion, the Tribunal allowed the appeal, overturning the Commissioner's order for the specified period. The judgment emphasized the importance of complying with the prescribed rules and procedures regarding CENVAT credit, especially in cases where separate accounts for inputs are not maintained but the requisite payments are made to the Revenue. The decision underscored the significance of following legal provisions to avoid unnecessary penalties and demands.