2023 (11) TMI 59 - AT - Central Excise

Reversal of CENVAT Credit - manufacture and clearance of Hemophilus Vaccine which is duty free - Rule 6(3) of CCR, 2004 - Appellants or M/s Panheber are manufacturers of the vaccine or not - HELD THAT - The Drug Controller has categorically clarified vide Letter dated 06.04.2017 that M/s Panacea Biotec Pvt. Ltd. and M/s Panheber Biotec Pvt. Ltd. were issued different drug manufacturing licences for separate modules in the year 2008 and that M/s Panheber Biotec Pvt. Ltd. has been renamed as M/s Panera Biotec Pvt. Ltd. registered with the same address. We find that there is an Agreement dated 10th July, 2008 between the appellant and M/s PanEra Biotec Pvt. Ltd. and the same is named Agreement for providing manufacturing facility, utilities and services of employees . Similarly, the books of accounts of M/s Panheber Biotec Pvt. Ltd. indicates that they have taken various assets situated at Lalru, Punjab on operating lease agreements from its associate M/s Panacea Biotec Pvt. Ltd. (the appellant); these are generally non-cancellable and are renewable by mutual consent on mutually agreed terms. The books of accounts do indicate that lease amounts have been paid to the appellant. Learned Commissioner has relied upon the fact that there are not records maintained by M/s Panheber and that the records maintained by the appellant do have the entries for the manufacture of the said vaccine - It is also not on record whether any communication or correspondence was made with the Drug Authorities to ascertain the claims of M/s Panheber and the appellants. Drug manufacturing being closely monitored by various agencies and subject to various controls cannot happen in a secretive manner. It is on record that various authorities, national and international, have visited the facility where M/s Panheber have manufactured the vaccines. Under the circumstances, the claim of the appellants cannot be simply brushed aside saying that they might have contravened Drug Laws and that it was a flimsy stand taken by the appellants. The Department having not negated the claims of the appellant that it was not the appellants who have manufactured impugned exempted product i.e the Hemophilus Flu Vaccine. Therefore, there are no case made by the Department to invoke the provisions of Rule 6(3) of the CCR, 2004. Coming to the alternate submission that Rule 6 provides for the situations where a manufacturer manufactures dutiable as well as exempted products and avails CENVAT credit on all the inputs/ input services/ capital goods and that the options given under Rule 6(3) of CCR, 2004 cannot be enforced, it is found that as submitted by the learned Counsel for the appellants that Hon ble High Court of Telangana has clearly interpreted the provisions in favour of the appellants. The findings of the Hon ble High Court are clear that Rule 6 does not provide any mechanism for recovery of the said 10% amount and that the Department is free to invoke Rule 14 of CCR, 2004 to demand wrongly availed credit, if any - the issue stands decided in favour of the appellants on the alternate submissions also. Appeal allowed.

Summary

Issues Involved:
The issues involved in the legal judgment are whether the appellants are liable to reverse 10% of the value of exempted goods under Rule 6(3) of CCR, 2004, and whether the vaccine in question was manufactured by the appellants or by another entity, M/s Panheber.

Issue 1: Liability under Rule 6(3) of CCR, 2004

The appellants, engaged in manufacturing PP Medicaments, availed CENVAT credit and cleared duty-free Hemophilus Vaccine. The CAG Audit alleged that the appellants should reverse 10% of the value of exempted goods under Rule 6(3) of CCR, 2004. The Commissioner upheld the demand against the appellant with equal penalty. The learned Counsel for the appellants argued that the demand under Rule 6(3) is not legally sustainable, citing precedents like Tiara Advertising. The Tribunal found in favor of the appellants, stating that the Department cannot enforce the options under Rule 6(3) on behalf of the service provider.

Issue 2: Identity of Vaccine Manufacturer

The appellants contended that the vaccine in question was not manufactured by them but by M/s Panheber. Evidence presented included agreements, balance sheets, licenses, and reports indicating M/s Panheber's role as the manufacturer. The Department relied on entries in the appellants' records to assert their manufacturing involvement. The Tribunal found that M/s Panheber was a separate legal entity with manufacturing licenses, agreements, and correspondence supporting their role as the manufacturer. The Department's failure to negate the appellants' claims led to the conclusion that Rule 6(3) of CCR, 2004 was not applicable.

Separate Judgment by the Judges:
The appeal was allowed with consequential relief, as the Tribunal found in favor of the appellants on both issues, emphasizing that the Department failed to prove the appellants' manufacturing involvement and that Rule 6(3) could not be enforced without proper verification. The judgment highlighted the importance of legal reasoning and evidence in determining liability under tax laws.