2022 (9) TMI 63 - AT - Central Excise

Validity of SCN - Reversal of CENVAT Credit - cenvatable inputs (explosives) are used by Maihar Cement Unit I in the manufacture of dutiable products (clinker and cement), as well as exempted goods i.e., limestone - non-maintenance of separate accounts for inputs used in the manufacture of dutiable and exempted goods - revenue neutrality - Rule 6(3)(b) of Cenvat Credit Rules - HELD THAT - The show cause notices are misconceived for any demand under Rule 6(3)(b)/6(3)(i) due to the admitted fact that the appellant have admittedly reversed the proportionate credit on input/explosives for limestone cleared from the captive mines to Unit-2. Rule 6 provides for a mechanism to reverse Cenvat credit either proportionately, if it can be calculated, and in the alternative, if the same cannot be calculated with ease, the rule provides for reversal of Cenvat credit taken on common inputs by reversing a specified percentage of the sales/transfer value of the exempted product. Such reversal is restricted to the opening balance of credit in the Cenvat account at the beginning of the period as modified by Cenvat credit taken during the accounting period. The appellant have reversed the proportionate Cenvat credit in terms of Rules 6 (3)(ii) of CCR, thus, there is no application of Rule 6 (3)(i). It is further found that the situation is wholly revenue neutral, as both the units under common management and ownership are paying duty on their dutiable finished product namely cement and clinker. In case, duty was paid in terms of Rule 6(3)(i), the same was available as credit to unit 2 as input credit. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Reversal of Cenvat Credit under Rule 6(3)(b) of Cenvat Credit Rules.
2. Maintenance of separate accounts for inputs used in the manufacture of dutiable and exempted goods.
3. Applicability of Rule 6(3)(i) post-amendment from 01.03.2008.
4. Revenue neutrality and proportionate credit reversal.

Detailed Analysis:

1. Reversal of Cenvat Credit under Rule 6(3)(b) of Cenvat Credit Rules:
The appeals were filed against a common order where the Commissioner dropped the proposed demand for reversal of Cenvat Credit under Rule 6(3)(b). The Commissioner concluded that there was no 'sale' of limestone from Unit 1 to Unit 2, as both units belong to the same company, making it an internal transfer rather than a sale. This interpretation was based on the fact that both units are divisions of Century Textiles and Industries Ltd. The Commissioner also referenced a previous Tribunal decision in the respondent's favor, which had attained finality.

2. Maintenance of Separate Accounts for Inputs:
The department argued that Unit 1 used common inputs (explosives) for manufacturing both dutiable and exempted goods without maintaining separate accounts, violating Rule 6(3)(i). This rule stipulates that manufacturers must either maintain separate accounts or reverse credit proportionate to the inputs used for exempted goods. The respondent countered that limestone is an intermediate product used in manufacturing dutiable cement, making the situation revenue-neutral as per the Supreme Court's judgment in Escorts Ltd. v. CCE.

3. Applicability of Rule 6(3)(i) Post-Amendment from 01.03.2008:
The High Court remanded the matter to examine the issue post-01.03.2008, when Rule 6(3) was amended. The department contended that the amended rule no longer required the exempted goods to be sold for the reversal of Cenvat credit, thus making the internal transfer of limestone subject to reversal. The respondent argued that the amended rule did not change the legal position and that the transfer of limestone was not a final product sale but an intermediate product transfer used in the manufacture of taxable cement.

4. Revenue Neutrality and Proportionate Credit Reversal:
The respondent claimed that they had reversed the proportionate credit on explosives used for excavating limestone transferred to Unit 2, as recorded by the Commissioner. This practice aligns with the Supreme Court's ruling in Chandrapur Magnets Wires (P) Ltd. v. CCE, which held that reversing the credit before clearing exempted goods is equivalent to not taking the credit at all. The Tribunal found that the situation was revenue-neutral since both units paid duty on their final products, and any duty paid under Rule 6(3)(i) would be available as credit to Unit 2.

Conclusion:
The Tribunal upheld the Commissioner's order, finding no merit in the department's appeals. The Tribunal concluded that the respondent's reversal of proportionate credit satisfied the requirements under Rule 6(3)(ii), making Rule 6(3)(i) inapplicable. The appeals were dismissed, and the impugned order was upheld, affirming the revenue-neutral nature of the transactions and the respondent's compliance with the credit reversal requirements. The restoration appeal was also disposed of as allowed.

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