2020 (2) TMI 685 - AT - Central Excise

CENVAT Credit - manufacture of dutiable as well as exempt goods - Rule 6(3) of Cenvat Credit Rules - non-maintenance of separate records - HELD THAT - It is an admitted fact that the appellant has kept separate records, as required under Rule 6(2) of inputs and capital goods w.e.f. 1.7.2014/1.4.2015. Further, the admitted fact is that the appellant has kept common records of only few common input services, which is of negligible amount and further, the turnover of exempted goods is also negligible as compared to dutiable goods. Further, the appellant has reversed cenvat credit, on being so advised by the Department of the credit attributable to the exempted goods, under intimation to the Department. Thus, it amounts to not taking of cenvat credit at all with respect to the exempted goods. Cenvat credit cannot be denied as it is held that the substantial benefit should not be denied for small procedural lapse. Further, it has been repeatedly held that Rule 6(2) read with Rule 6(3) is not the charging section or provision, it is only the mechanism to reverse the cenvat credit involved in the exempt out (finished goods) by way of a convenient formula. The impugned order suffers with impropriety and the same is mis-conceived - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Compliance with Rule 6(2) of Cenvat Credit Rules for maintaining separate accounts of inputs and input services used in dutiable and exempted goods.
2. Alleged clearance of exempted goods without payment of duty under Rule 6(3) of Cenvat Credit Rules.
3. Availment of cenvat credit on inputs, input services, and capital goods.
4. Short payment/reversal of amount under Rule 6(3)(1) for the period 2016-2017.
5. Alleged contravention of Rule 9 by wrong availment of cenvat credit on photocopies of documents.
6. Show cause notice proposing demands, interest, and penalty.
7. Adjudication confirming demands and penalties under Section 11 AC read with Rule 15 of Cenvat Credit Rules.
8. Arguments regarding maintaining separate accounts, reversal of cenvat credit, and procedural lapses.
9. Applicability of 6% reversal of value of exempted goods.
10. Disallowance of cenvat credit based on photocopies of documents and subsequent reversal.

Detailed Analysis:
1. The appellant, a manufacturer of dutiable and exempted goods, maintained separate accounts of inputs and input services as required under Rule 6(2) of Cenvat Credit Rules. However, the Department alleged clearance of exempted goods without duty payment and improper availment of cenvat credit.
2. The Department found discrepancies in the appellant's compliance with Rule 6(3) of Cenvat Credit Rules regarding the reversal of credit for exempted goods. The appellant contested these allegations, citing difficulties in maintaining separate records for certain common input services.
3. The appellant was accused of short payment and reversal of amounts under Rule 6(3)(1) for the period 2016-2017, along with wrong availment of cenvat credit on photocopies of documents, leading to a show cause notice proposing demands and penalties.
4. The adjudication confirmed the demands and penalties, imposing equal penalties for all proposals under Section 11 AC read with Rule 15 of Cenvat Credit Rules, prompting the appellant to appeal before the Tribunal.
5. The appellant argued that for minor procedural lapses, substantial benefits should not be denied, emphasizing that Rule 6 is a mechanism for reversing cenvat credit and not a charging section.
6. Regarding the 6% reversal of exempted goods' value, the appellant contended that the reversal only applies to goods manufactured after availing cenvat credit, not to those already in stock as of 1.4.2016, as clarified by previous Tribunal orders.
7. The appellant also challenged the disallowance of cenvat credit based on photocopies of documents, stating that the originals were later produced and the reversed credit re-availed, seeking the dropping of penalties.
8. The Tribunal, after considering the contentions, found that the appellant had maintained separate records and reversed cenvat credit for exempted goods, concluding that the impugned order suffered impropriety and was mis-conceived, thus allowing the appeal and setting aside the order.

This detailed analysis covers the issues raised in the legal judgment comprehensively, outlining the arguments, findings, and conclusions made by the Tribunal.