2019 (6) TMI 362 - AT - Central Excise

CENVAT credit - taxable as well as exempt goods - inclusion of value of clearances of export made by the appellant of the goods for which the exemption under Notification No. 30/2004 has been availed - Rule 6 (6) (v) of the CENVAT Credit Rules, 2004 - HELD THAT - Rule 6 (6) (v) of the CENVAT Credit Rules, 2004 states that provisions contained in Sub-Rules (1), (2), (3) and (4) of Rule 6 shall not be applicable in case the excisable goods removed without payment of duty are cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002 - Thus, as per Rule 6 (6) (v) of the CENVAT Credit Rules, 2004, when exempted goods are cleared for export under bond, the bar under Rule 6 (1) ibid not to avail credit on common inputs/input services is not applicable - Thus, even if the exempted goods are exported, credit is eligible. Whether the amendment brought forth to do away with the requirement to execute a bond while exporting exempted goods would change the situation? - HELD THAT - The Tribunal in M/s. Jolly Board Ltd. 2014 (3) TMI 124 - CESTAT MUMBAI had occasion to consider the issue post amendment vide Notification No. 42/2001. In paragraph 7 of the said judgement, the Tribunal, after referring to the decision in M/s. Repro India Ltd. 2007 (12) TMI 209 - BOMBAY HIGH COURT , has held that the requirement for execution of a bond is only a procedural one and therefore, refund cannot be denied - The credit availed on input services is eligible and the contention of the Department that the credit has to be reversed is against the provisions of law. CENVAT Credit - input contained in the waste - Requirement of including the turnover of yarn waste cleared by the appellant - Department is of the view that the credit on inputs contained in the waste is not eligible and has to be reversed by the appellant - HELD THAT - Paragraph 3.7 of the Supplementary Instructions issued by the Department after introduction of the CENVAT Credit Rules, 2002 states that credit is admissible on the amount of inputs contained in any waste, refuse or by-product. The argument of the Ld. AR for the Department that the appellants are manufacturing waste cannot be accepted. The appellants are not consciously manufacturing waste and it is merely a refuse or waste which is not dutiable, as held by the Hon ble Supreme Court in various decisions - The credit on inputs contained in waste is not required to be reversed. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of the value of clearances for export claiming exemption under Notification No. 30/2004.
2. Requirement of adding the turnover of yarn waste to arrive at the amount that has to be reversed by the appellant.
3. Ground of limitation regarding the issuance of the Show Cause Notice.

Issue-wise Detailed Analysis:

1. Inclusion of the Value of Clearances for Export Claiming Exemption under Notification No. 30/2004:

The Department contended that the appellant must include the value of clearances for export claiming exemption under Notification No. 30/2004 to compute the value of exempted goods cleared. The appellant argued that they did not avail any credit on inputs, only on input services, and as per Rule 6 (6) (v) of the CENVAT Credit Rules, 2004, the obligation not to take credit on common inputs used for both dutiable and exempted products does not apply when goods are exported under bond. The Department's stance was that since the appellant did not execute a bond due to an amendment in Notification No. 42/2001-C.E. (N.T.), the credit availed on exempted goods exported was not eligible.

The Tribunal referred to several precedents, including the decisions in *Commissioner of Central Excise Vs. M/s. Drish Shoes Ltd.*, *M/s. Repro India Ltd. Vs. Union of India*, and *M/s. Jolly Board Ltd. Vs. Commissioner of Central Excise, Aurangabad*, which upheld the eligibility of credit on inputs/input services used for the manufacture of exempted goods when exported, even if no bond was executed. The Tribunal concluded that the requirement for execution of a bond is procedural and does not affect the eligibility of credit. Thus, the credit availed on input services is eligible, and the appellant's contention was upheld.

2. Requirement of Adding the Turnover of Yarn Waste:

The Department asserted that the appellant must include the turnover of yarn waste to determine the amount of credit to be reversed. The appellant argued that Rule 57D of the erstwhile MODVAT scheme and paragraph 3.7 of the Supplementary Instructions after the introduction of the CENVAT Credit Rules clarified that credit on inputs contained in waste is admissible. The Tribunal noted that the appellants are not consciously manufacturing waste, and it is merely refuse or waste, which is not dutiable. The Tribunal referenced the decision in *M/s. Eveready Industries India Ltd. Vs. Commissioner of Customs, Central Excise and Service Tax, Noida*, which held that credit on inputs contained in waste is not required to be reversed. Therefore, the Tribunal concluded that the appellant's reversal of proportionate credit was in order, and the Department's demand was illegal.

3. Ground of Limitation:

The appellant argued that the Show Cause Notice issued on 17.06.2015 for the period from 2009 to 2011 (September 2011) was beyond the permissible period and that the issue was interpretational, thus extended period of limitation could not be invoked. The Department contended that the short payment or short reversal would not have been discovered without their intervention, implying suppression of facts with intent to evade duty. The Tribunal did not explicitly address this issue in its final decision, focusing instead on the substantive issues of credit eligibility and waste turnover.

Conclusion:

The Tribunal set aside the impugned order to the extent discussed, without disturbing the Commissioner (Appeals)'s direction remanding the issue of clearances of goods manufactured on a job work basis. The appeal was allowed with consequential reliefs as per law.