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2022 (2) TMI 729 - AT - Central ExciseCENVAT Credit - manufacture of dutiable as well as exempted products - exempted products include LPG (Domestic), SKO (Domestic), etc. - common inputs and input services which go into manufacture of dutiable as well as exempted products - non-maintenance of separate records - Scope of Rule 6 of CCR - HELD THAT - Rule 6 of CCR, 2004 lists out obligations of the assessee to avail CENVAT credit. This Rule also provides various alternatives through which the obligations can be met. Rule 6(1) mandates that the assessee shall not take credit on the inputs/input services used in manufacture of exempted products. Rule 6(2) deals with cases where the manufacturer manufactures both dutiable and exempted products and requires the assessee to maintain separate accounts. Rule 6(3) provides another alternative to reverse an amount equal to 10% of the value of the exempted goods if the assessee chooses not to maintain separate accounts. If the manufacturer takes CENVAT credit and does not follow any of the obligations under Rule 6 can it be compelled to follow any of the options? - HELD THAT - A plain reading of the Rule does not show so. An illustration will make the position clear. Colleges select students and grant them admission to various courses. The selection will be subject to conditions such as, produce all the original certificates for verification, pay the fee by a certain date, etc. If the fee is not paid by that date, the college may give the student the option to pay the fee by a further date with late fee. In such a case, the student has an option of not producing his certificates and not paying the fee and not taking the admission at all. He also has the option of producing his certificates and paying the fee in time and taking the admission - Taking admission or fulfilling the pre-requisites for admission are not his legal duties. By contrast, one who manufactures excisable goods or provides taxable services has legal obligations such as taking registration, paying duty/tax and filing returns and failure to discharge any of these legal duties entails penalties. There is no Rule under which a manufacturer can be compelled to follow any of the options of Rule 6.The SCNs in these appeals were issued proposing to recover under Rule 14 of CCR an amount to fulfill obligations under Rule 6(3). A plain reading of Rule 14 shows that it does not empower the Revenue to compel the manufacturer to maintain separate accounts or to pay an amount equal to 10% of the value of the exempted goods. Therefore, any demand of an amount under Rule 6(3) is per se, without any authority of law and there is no Rule under which such an amount can be demanded. There are no force in the argument of the Revenue that the Commissioner could not have decided the matters as per Rule 6(2) which was in existence prior to 2010. Therefore there was no restriction in the remand orders on the learned Commissioner deciding the matter in terms of Rule 6(2) of Cenvat Credit Rules, 2004. Maintenance of separate accounts of receipt, consumption and disposal of the inputs/input services under Rule 6(2) - HELD THAT - This rule does not require the assessee to either procure the goods or input services separately for use in dutiable and exempted final products nor does it require the assessee to stock the inputs used in manufacture of dutiable and exempted products separately. All that it requires that separate accounts have to be maintained. Accounts can be maintained in many ways and the rules do not prescribe any particular form of accounts. The respondent has produced certificate from the Chartered Accountant who has audited their accounts showing that the percentage of exempted goods cleared by them never touched; late alone exceeded 15% and they have taken credit on common inputs and input services only to the extent of 85%.We find that as per the evidence produced by the respondent they have more than fully met the requirements of Rule 6(2). On the other hand, there are no evidence produced by the Revenue to show that the proportionate amount of Cenvat credit reversed/not taken by the respondent was calculated wrongly. Revenue also has not produced any alternative calculations to show how much should have been reversed/not taken . In the absence of any other evidence, the Chartered Accountant certificate produced by the respondent is accepted and it is held that the respondent had sufficiently met with the requirements of maintaining separate accounts under Rule 6(2) and the Commissioner has correctly dropped all the demands. This issue decided in favour of the Respondent assessee and against the appellant Revenue. The demands in the show cause notices under Rule 14 of the Cenvat Credit Rules, 2004 of an amount equal to 10% of the value of exempted goods Rule 6 (3) are not sustainable in law at all and, therefore, none of the demands could have been confirmed as the lack any legal basis. It is also found that the Commissioner has not exceeded the scope of the remand order of this Tribunal in the first round in examining if the respondent assessee has fulfilled the requirements of Rule 6(2) of the CCR, 2004 as the remand order left the issue open and has not given any finding on it. It is also found that in these matters, the respondent had maintained separate accounts in the most practical way possible by taking only proportionate amount of Cenvat credit to the extent of 85% which accounts for the proportion of dutiable goods manufactured by them and, therefore, the respondent assessee has met with the requirements of Rule 6(2). Appeal dismissed - decided against Revenue.
Issues Involved:
1. Legality of demanding 10% of the value of exempted goods under Rule 6(3) of the Cenvat Credit Rules (CCR), 2004. 2. Scope of the Commissioner’s authority in remand proceedings. 3. Compliance with Rule 6(2) of CCR by taking only 85% of the credit on common input services. 4. Sustainability of demands under Rule 14 invoking an extended period of limitation. 5. Imposability of penalties under Rule 15 of CCR, 2004. Issue-wise Analysis: 1. Legality of Demanding 10% of the Value of Exempted Goods under Rule 6(3) of CCR, 2004: The Tribunal considered whether the Show Cause Notices (SCNs) demanding an amount equal to 10% of the value of exempted goods under Rule 6(3) of CCR were legally sustainable. The Tribunal concluded that Rule 6(3) merely offers options to manufacturers who do not maintain separate accounts. It does not empower the Revenue to compel the manufacturer to choose any specific option. The Tribunal cited the judgment of the Hon’ble High Court of Telangana in the case of Tiara Advertising versus Union of India, which clarified that if the manufacturer did not follow Rule 6(3), the authorities could reject the Cenvat credit claim but could not choose an option on behalf of the manufacturer. Therefore, the demands under Rule 6(3) were found to be without any authority of law and not sustainable. 2. Scope of the Commissioner’s Authority in Remand Proceedings: The Tribunal examined whether the Commissioner exceeded the scope of the remand order by deciding the matter based on Rule 6(2) of CCR. The Tribunal found that the remand orders were open remands, allowing the Adjudicating Authority to decide the matter considering the retrospective amendment by the Finance Act, 2010. There was no restriction on the Commissioner examining the matter in terms of Rule 6(2). Therefore, the Commissioner was correct in examining the cases under Rule 6(2) and did not go beyond the scope of the remand. 3. Compliance with Rule 6(2) of CCR by Taking Only 85% of the Credit on Common Input Services: The Tribunal analyzed whether the respondent fulfilled its obligations under Rule 6(2) by taking only 85% of the credit on common input services. Rule 6(2) requires maintaining separate accounts for inputs and input services used for dutiable and exempted products. The Tribunal found that maintaining separate accounts does not necessarily mean procuring or stocking inputs separately. The respondent produced a Chartered Accountant’s certificate showing that the percentage of exempted goods never exceeded 15%, and they took credit only to the extent of 85%. The Tribunal accepted this evidence, concluding that the respondent had sufficiently met the requirements of Rule 6(2). 4. Sustainability of Demands under Rule 14 Invoking Extended Period of Limitation: The Tribunal noted that Rule 14 of CCR deals with the recovery of Cenvat credit wrongly taken or utilized. Since the demands under Rule 6(3) were found to be unsustainable, the demands under Rule 14 were also not sustainable. The Tribunal emphasized that there is no rule under which a manufacturer can be compelled to follow any of the options under Rule 6. Therefore, the demands invoking Rule 14 were invalid. 5. Imposability of Penalties under Rule 15 of CCR, 2004: Given that the demands under Rule 6(3) and Rule 14 were found to be unsustainable, the Tribunal concluded that no penalties could be imposed under Rule 15 of CCR, 2004. Rule 15 deals with penalties for wrongfully taking or utilizing Cenvat credit. Since the respondent had complied with Rule 6(2) and the demands were invalid, no penalty was warranted. Conclusion: The Tribunal rejected all appeals filed by the Revenue and upheld the impugned orders. The Tribunal found that the SCNs demanding 10% of the value of exempted goods under Rule 6(3) were not sustainable. The Commissioner was correct in examining the cases under Rule 6(2) and did not exceed the scope of the remand. The respondent had fulfilled its obligations under Rule 6(2) by taking only 85% of the credit on common input services. Consequently, the demands under Rule 14 were not sustainable, and no penalties were imposable under Rule 15. The cross-objections were also disposed of.
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