2020 (11) TMI 490 - AT - Central Excise

Reversal of CENVAT Credit - common inputs used for taxable as well as exempt goods - non-maintenance of separate records - Ammonia - intermediate goods/captive consumption - Sl.No.86 of Notification No.12/2012 - period of dispute is April 2015 to Jan. 2016 and Feb. 2016 to March 2016 - Extended period of Limitation - HELD THAT - Evidently when the appellant clears part of Ammonia being Surplus on payment of duty admittedly the final product being cleared is Ammonia. Therefore Ammonia becomes the dutiable goods manufactured by the appellant. Majority of the Ammonia so produced however is used as an intermediate product and consumed for the manufacture of Urea. Thus the final product of the appellant is Urea and SSP (exempt). Thus the captively consumed Ammonia cannot be treated as exempted final product by any stretch of imagination. The final product of the appellant is Ammonia Urea and SSP value of which has been taken for computation under Rule 6 (3A). Revenue is trying to stretch the law in disregard to express provisions of the Act and the Cenvat Credit Rules. Rule 6(3)(i) provides for payment of an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services; or (ii) pay an amount as determined under sub-rule (3A); or (iii) maintain separate accounts - It is further provided under Rule 6(3A) (b) to apply the standard formula for calculating the amount to be reversed or the ineligible Cenvat Credit. Rule 6 is attracted only in case where an assessee manufacturers two output goods or is rendering two output services where one is exempt and the other dutiable. Further Statute is very clear under the Rule 6(3)(ii) read with Rule 6(3A) which clearly provides for eligibility of input services in or in relation to the manufacture of exempted goods and its clearance upto the place of removal shall be calculated proportionately - it is evident from the plain reading of the Rule that it speaks about the goods manufactured and removed during the financial year and the intermediate products emerges during the manufacture of exempted final products. Extended period of Limitation - HELD THAT - The issue being wholly interpretational extended period of limitation is not invokable. The case of the Revenue is mis-conceived and the show cause notice is bad - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Dispute regarding the value of final products for reversing CENVAT credit under Rule 6(3)(ii) read with Rule 6(3A)(b)(iii) of CCR, 2004.
2. Computation of proportionate credit and inclusion of value of urea/SSP.
3. Eligibility of taking credit of input services for dutiable Ammonia.
4. Application of extended period of limitation.

Issue-wise Detailed Analysis:

1. Dispute Regarding the Value of Final Products for Reversing CENVAT Credit:
The appeals arise from a common order-in-appeal concerning the value of final products, which impacts the requirement to reverse CENVAT credit under Rule 6(3)(ii) read with Rule 6(3A)(b)(iii) of CCR, 2004. The appellant manufactures urea and Single Super Phosphate (SSP), which are exempted fertilizers under Notification No. 12/2012. The main input is compressed natural gas (CNG), used to produce Ammonia, an intermediate product for manufacturing urea. The appellant did not maintain separate accounts for inputs used in dutiable and exempted goods and opted to reverse proportionate credit based on the value ratio of dutiable Ammonia to total goods.

2. Computation of Proportionate Credit and Inclusion of Value of Urea/SSP:
The Department issued a show cause notice disputing the appellant's computation of proportionate credit, alleging excess credit availed by including the value of urea/SSP. The appellant argued that they computed credit based on the value of dutiable and exempted final products, not intermediate Ammonia. The Department contended that only the value of dutiable Ammonia should be considered, excluding urea/SSP subsidized values. The Dy. Commissioner confirmed the demand, excluding incorrect computation amounts, and imposed penalties.

3. Eligibility of Taking Credit of Input Services for Dutiable Ammonia:
The appellant argued that the main input service (transportation of natural gas) relates to manufacturing Ammonia, hence credit should be based on the value of dutiable Ammonia. The Revenue argued that the value of Ammonia is subsumed in subsidized urea, reducing the actual value of inputs. The Tribunal found that Rule 6 applies to cases with both dutiable and exempted final products, and intermediate products like Ammonia should not be treated as final exempted products for credit computation.

4. Application of Extended Period of Limitation:
The appellant contested the invocation of the extended period of limitation, arguing the issue was interpretational without suppression of facts or fraud. The Tribunal agreed, stating the issue was interpretational and the extended period was not applicable. The Tribunal allowed the appeals, setting aside the impugned orders and granting consequential benefits.

Conclusion:
The Tribunal concluded that the Revenue's interpretation was incorrect, as Rule 6 pertains to final products, not intermediate products like Ammonia. The show cause notice was deemed misconceived, and the extended period of limitation was not applicable due to the interpretational nature of the issue. The appeals were allowed, and the impugned orders were set aside.