2007 (11) TMI 174 - AT - Central Excise

Cenvat credit availed on inputs i.e. molasses, which is used in the manufacture of dutiable as well as exempted finished goods - adjudicating authority directed reversal of credit u/r 6(3) of the Cenvat Credit Rules in respect of the quantity of inputs used in the exempted finished product which were evaporated during the storage Rule 6(3)(a) not applicable because goods have not been removed from factory

Summary

Issues:
- Appeal against order-in-appeal
- Availing Cenvat credit on inputs for dutiable and exempted finished goods
- Reversal of credit under Rule 6(3) of Cenvat Credit Rules
- Dispute over storage loss of exempted finished goods
- Applicability of Rule 6(3)(a) of Cenvat Credit Rules

Analysis:
The appeal was filed against the order-in-appeal, where the respondent, engaged in the manufacture of V.P. Sugar & Molasses, Ethyl Alcohol Denatured, availed Cenvat credit on inputs for both dutiable and exempted finished goods. The adjudicating authority directed the reversal of credit under Rule 6(3) of the Cenvat Credit Rules for the quantity of inputs used in exempted finished products that evaporated during storage. The Commissioner (Appeals) set aside this order and allowed the respondent's appeal.

During the proceedings, the authorized representative for the Revenue argued that the losses of exempted goods were condoned, and credit on inputs used in the manufacture of exempted goods was allowed without any provision in the Central Excise Rules for such remission. The respondent's counsel, on the other hand, reiterated the findings of the Commissioner (Appeals) and contended that Rule 6(3)(a) of the Cenvat Credit Rules should not apply as there was no clearance of the exempted finished goods.

Upon hearing both sides and reviewing the records, it was noted that there was no dispute regarding the storage loss of exempted finished goods where duty-paid inputs were utilized. The show cause notice proposed recovery of an amount equivalent to the Cenvat credit attributable to inputs used in the manufacture of exempted finished products cleared at a Nil rate of duty under Rule 6(3)(a) of the Cenvat Credit Rules. However, it was observed that there was no clearance of the goods from the factory, rendering the recovery under Rule 6(3)(a) inapplicable.

The order of the Commissioner (Appeals) highlighted that there was no evidence to prove the sale of the disputed quantity of RS & ENA from the factory, and the loss was deemed a natural phenomenon. The UP Excise Officers confirmed the storage loss and did not charge any duty on the lost quantity. Therefore, the recovery under Rule 6(3)(a) was deemed not applicable, leading to the rejection of the Revenue's appeal. The Tribunal's decision in a similar case further supported this conclusion, resulting in the dismissal of the appeal.