2022 (12) TMI 92 - AT - Central Excise

CENVAT Credit - requirement to reverse credit in respect of inputs and input service attributed to exempted goods - liability to pay 5% / 10% in terms of Rule 6(3) of Cenvat Credit Rules 2004 - HELD THAT - It is not disputed that appellant have been maintaining separate record for cenvatable and non-cenvatable inputs in RG-23 Part-I and Form-IV register respectively. The appellant made some transfer entry due to the reason that at times the input which was issued for exempted goods from their Form-IV register subsequently because of the use in the dutiable goods transfer to the accounts of dutiable goods i.e. Part-I and similarly the transfer entry was made for vice-versa. Due to this transfer entry the Adjudicating Authority cannot say that they are not maintaining separate accounts. It is clear that the appellant have not taken or reversed the Cenvat credit in respect of input and input service. The Adjudicating Authority has confirmed the demand of Rs. 1, 98, 42, 913/- in terms of Rule 6(3) of Cenvat Credit Rules 2004. In case of demand under Rule 6(3) for the amount 5%/ 10% is made the appellant became entitle to take credit in respect of all inputs and input service irrespective of the use of the same either in the dutiable or exempted goods. Therefore if the appellant have already reversed/ not taken credit of Rs. 2, 27, 92, 622/- then the demand of Rs. 1, 98, 42, 913/- which is lesser than the foregone credit of the appellant will not sustain. Even though the Adjudicating Authority has some doubt about manner of maintenance of separate accounts but the fact remains that the appellant have not taken/ reversed Cenvat credit in respect of input and input service of Rs. 2, 27, 92, 622/-. On this basis itself without going into correctness of the separate accounts the demand is not sustainable. The demand under Rule 6(3) of Cenvat Credit Rules 2004 is not sustainable - the interest and penalty is also not maintainable. Personal penalty of Rs. 10, 00, 000/- imposed on Shri Rajesh Kumar Sinha Manager (Administration) Authorised signatory of M/s. Manglam Drugs Organics Limited being consequential to demand which is sustainable is also not maintainable - Appeal allowed.

Summary

Issues:
1. Availment of Cenvat credit on input and input services for both dutiable and exempted goods.
2. Demand raised by the department under Rule 6(3) of Cenvat Credit Rules, 2004.
3. Imposition of penalty under Section 11AC of Central Excise Act, 1944 and Rule 26 of the Central Excise Rules, 2002.

Analysis:
1. The appellant, engaged in manufacturing dutiable and exempted goods, claimed they did not avail Cenvat credit on inputs used in exempted goods and maintained separate accounts. They transferred stock between exempted and dutiable goods based on actual usage. Regarding input services, they availed common services but reversed proportionate credit for exempted goods. The department demanded 5% / 10% of the value of exempted goods, alleging the appellant did not prove their claim, resulting in a significant financial demand and a penalty on the Manager. The appellant argued they substantiated their claim with a Chartered Accountant certificate, showing they forewent credit lower than the demand, indicating non-availment of credit on inputs and services for exempted goods.

2. The key issue was whether the appellant, by not taking credit on inputs and reversing credit on input services for exempted goods, was liable to pay under Rule 6(3) of Cenvat Credit Rules, 2004. The appellant maintained separate records for cenvatable and non-cenvatable inputs, transferring entries as needed between exempted and dutiable goods. The Adjudicating Authority failed to verify the appellant's claim or consider the Chartered Accountant certificate. The appellant demonstrated through revised certificates that they forewent more credit than the demanded amount, indicating no availment of credit on inputs and services. The Tribunal concluded that the demand was unsustainable given the appellant's non-availment or reversal of credit, regardless of separate account maintenance doubts.

3. The Tribunal found the demand under Rule 6(3) unsustainable, leading to the dismissal of associated interest and penalty. The personal penalty on the Manager was also deemed unjustifiable due to the unsustainable demand. Consequently, the impugned order was set aside, and the appeals were allowed with consequential relief, emphasizing the non-sustainability of the demand based on the appellant's credit practices.

This comprehensive analysis outlines the legal intricacies and arguments presented in the judgment, highlighting the Tribunal's decision to set aside the demand and associated penalties based on the appellant's demonstrated non-availment of credit on inputs and services for exempted goods.