2023 (3) TMI 7 - HC - Central Excise

Reversal of proportionate input tax credit - whole quantity of inputs used in the manufacture of dutiable as well as exempted products - non-maintenance of separate records - requirement to pay an amount equal to 8% of the price of the exempted goods, charged by it for sale of exempted goods at the time of their clearance from its factory as per Rule 57CC (1) of the Rules, 1944. HELD THAT - The Rules, 1944 were subsequently amended vide Section 69 of the Act, 2010 and Rule 57 CCC was inserted. As per Section 69 sub-Section 1 of the Act, 2010, the Rules, 1944 shall stand amended and shall be deemed to have been amended retrospectively, in the manner specified in Column (3) of the Fourth Schedule, on and from and up to the corresponding date specified in column (4) of that Schedule. As per sub-Section 2, where a person opts to pay the amount in accordance with provisions of Rules, 1944 as amended by Sub-Section (1), he shall pay the amount along with interest specified thereunder and make an application to the Commissioner of Central Excise along with documentary evidence and a certificate from a Chartered Accountant certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of the final products, which are exempted from whole of the duty of excise leviable thereon or chargeable to nil rate of duty, within a period of six months from the date on which the Finance Bill, 2010 receives the assent of the President. The respondent was admittedly maintaining a common inventory/account of receipt and use of the said common inputs. The dispute related to maintenance of separate accounts and inventory of the inputs meant for exempted final products as well as dutiable final products. The respondent reversed the modvat credit amounting to Rs.4,51,574/- on proportionate basis in respect of the inputs used in the manufacture of exempted final products and also paid interest @24% per annum on the amount of reversed credit during the pendency of the appeal pending before the Tribunal earlier. By way of amendment in the Act, 2010, the Rules, 1944 were amended and Rule 57 CCC was inserted for reversal of actual credit by the manufacturer availing the credit of specified duty in respect of inputs used for manufacture of final product, which was chargeable to duty or chargeable to nil rate of duty by payment of amount equivalent to amount of credit attributable to inputs used in the manufacture of such final products. Undoubtedly, the respondent herein had not moved any application while opting to reverse the proportionate credit within six months of enactment of Finance Bill, 2010 along with documentary evidence and certificate from Chartered Accountant as required under Rule 57 CCC of the Rules. However, since all this happened during the pendency of the proceedings while the respondent had been still prosecuting its remedies, therefore, it cannot be stated that the respondent had not complied with the requirement of scheme of retrospective amendment of Section 69 (2) of the Act, 2010. As such, the learned Tribunal had rightly set aside the demand of the appellant of tax of 8% of value of exempted goods. Appeal dismissed.

Issues Involved:
1. Availment of Modvat Credit on Inputs for Exempted and Dutiable Goods
2. Requirement to Maintain Separate Inventory and Accounts
3. Reversal of Modvat Credit and Compliance with Rule 57CC of Central Excise Rules, 1944
4. Retrospective Amendment and Application under Section 69(2) of Finance Act, 2010

Issue-Wise Detailed Analysis:

1. Availment of Modvat Credit on Inputs for Exempted and Dutiable Goods:
The respondent was engaged in the manufacture of Vanaspati Ghee and Refined Vegetable Oil, which were exempted goods, and also produced acid oil, a dutiable product. The respondent availed Modvat credit on inputs used in the manufacture of both exempted and dutiable goods. The department's inquiry revealed that common inputs were used for both categories of goods, without maintaining separate accounts. The respondent was required to pay 8% of the price of exempted goods as per Rule 57CC(1) of the Central Excise Rules, 1944, but failed to do so.

2. Requirement to Maintain Separate Inventory and Accounts:
The respondent did not maintain separate inventory and accounts for the receipt and use of inputs for exempted and dutiable goods. This non-compliance led to the department's contention that the respondent suppressed material facts to fraudulently avail Modvat credit and evade payment of the required amount. The department issued a show cause notice and adjudicated the matter, leading to a demand for recovery and imposition of penalties.

3. Reversal of Modvat Credit and Compliance with Rule 57CC of Central Excise Rules, 1944:
The respondent reversed the Modvat credit attributable to the common inputs used for exempted goods and paid interest at 24% per annum. The Tribunal held that the demand for 8% of the value of exempted goods was not maintainable, as the respondent had already reversed the actual amount of Cenvat credit availed on common inputs. The Tribunal's decision was based on the subsequent insertion of Rule 57CCC in the Rules, 1944, which allowed for the reversal of actual credit by the manufacturer.

4. Retrospective Amendment and Application under Section 69(2) of Finance Act, 2010:
The Rules, 1944 were amended retrospectively by Section 69 of the Finance Act, 2010, and Rule 57 CCC was inserted. This amendment allowed for the reversal of actual credit by the manufacturer. The respondent met the requirements of the scheme of Section 69(2) of the Act, 2010, by reversing the credit and paying interest. Although the respondent did not move an application within the stipulated six months, the Tribunal held that the amended provisions covered such situations, and the respondent's compliance was deemed sufficient.

Conclusion:
The High Court upheld the Tribunal's decision, stating that the respondent had complied with the requirements of the retrospective amendment under Section 69(2) of the Finance Act, 2010. The Tribunal's order setting aside the demand for 8% of the value of exempted goods was affirmed. The appeal was dismissed, and the substantial question of law was decided accordingly.

← Previous Next →