2008 (2) TMI 156 - AT - Central Excise

Common inputs without maintaining separate accounts, proportionate credit was reversed before clearance of the exempted final products circular 654/45/2002, does not address the question as to the point of time at which common inputs must be segregated for separate accounting - in a conflict between Board s circular & Tribunals decision, the Tribunal s decision shall prevail - held that the assessee could not be required to pay 8% of the value of the exempted goods in terms of Rule 57AD

Summary

Issues:
- Maintenance of separate accounts for common inputs used in the manufacture of dutiable and exempted final products
- Compliance with Rule 57AD(2) of the Central Excise Rules, 1944 and Rule 6(2) of the Cenvat Credit Rules, 2001
- Reversal of Cenvat credit on common inputs before clearance of exempted final products
- Interpretation of Board's Circular No. 654/45/2002-CX
- Applicability of previous judgments in similar cases

Analysis:

Issue 1: The appellants did not maintain separate accounts for common inputs used in the manufacture of dutiable and exempted final products. However, they reversed the Cenvat credit on these common inputs before issuing them for the production of exempted goods. The Tribunal noted that neither Rule 57AD(2) of the Central Excise Rules, 1944 nor Rule 6(2) of the Cenvat Credit Rules, 2001 specified a specific time for segregating common inputs. The Tribunal cited previous cases where inadmissible credit was reversed before clearance of exempted products, leading to the demand being set aside.

Issue 2: The Tribunal considered the Board's Circular dated 19-8-2002, which did not address the timing of segregating common inputs for separate accounting or the reversal of inadmissible Cenvat credit before clearance of exempted products. The Tribunal emphasized that in case of a conflict between the Board's circular and the Tribunal's decision, the latter would prevail.

Conclusion: The Tribunal set aside the impugned order and allowed the appeal in favor of the appellants, providing them with consequential reliefs. The judgment highlighted the importance of substantial compliance with the rules regarding the maintenance of separate accounts for common inputs and the reversal of inadmissible credit before the clearance of exempted final products. The decision was based on the principles established in previous judgments and the interpretation of relevant legal provisions and circulars.