2021 (4) TMI 669 - AT - Central Excise

CENVAT Credit - exempt goods - non-maintenance of separate account of inputs and input services used in manufacturing of exempted as well as dutiable goods - invocation of extended period of limitation or not - Rule 6(3) of Cenvat Credit Rules, 2004 - HELD THAT - It is fact on record that the appellant is filing ER-1 return regularly showing clearance of impugned goods without payment of duty and without reversal of credit and the show cause notice was issued by invoking the extended period of limitation. Therefore, the extended period of limitation is not invokable in the facts and circumstances of the case. On merits, it is a case that the appellant is manufacturing dutiable goods not exempted goods. Some clearances were exempted from payment of duty by way of Notification No.10/1997 dt.1.3.1997, (amended) to specified buyer of the goods if those buyers fulfil condition of the said notification. Buying goods from the appellant under Notification No.10/1997 dt.1.3.1997 without payment of duty does not change the character of the goods as exempted goods - Rule 6(3) of Cenvat Credit Rules are not applicable to the facts of the present case. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand under Rule 6(3) of Cenvat Credit Rules, 2004 for non-reversal of credit on exempted goods without separate account maintenance.

Analysis:
1. The appellant, engaged in manufacturing steel furniture, faced a demand under Rule 6(3) of Cenvat Credit Rules, 2004 due to not maintaining separate accounts for inputs used in manufacturing both exempted and dutiable goods. The audit revealed discrepancies in clearing goods with and without payment of central excise duty, leading to a show cause notice for the period November 2015 to March 2017.

2. The appellant argued that as they manufactured dutiable goods and some clearances were duty-free under a specific notification, separate accounts for inputs were unnecessary. They contended that since they filed ER-1 returns regularly, the show cause notice was time-barred.

3. The respondent contended that the appellant, by clearing goods without duty payment, should have maintained separate accounts for inputs. Failure to do so required the reversal of Cenvat credit or payment of a specified percentage of the value of goods cleared without duty. The respondent justified invoking the extended period of limitation, citing potential duty evasion if not detected during audit.

4. After hearing both parties, it was established that the appellant regularly filed ER-1 returns, disclosing the clearance of goods without duty payment, rendering the extended period of limitation inapplicable. Moreover, as the appellant primarily manufactured dutiable goods, the provisions of Rule 6(3) of Cenvat Credit Rules did not apply to their case.

5. The decision in Narmada Valley Fertilizers case, relied upon by the respondent, was deemed inapplicable as it involved goods wholly exempted from duty, unlike the present case. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.