2006 (3) TMI 11 - AT - Central Excise

Central Excise The proportionate credit reversed prior to clearance of exempted goods amount to non-availed credit, it is not possible to segregate the inputs

Summary

Issues: Input duty credit on Nitrogen Gas used for dutiable and non-dutiable lamps, applicability of Rule 57AD of the Central Excise Rules, 1944, reversal of credit amount, interpretation of the decision in the case of Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur, relevance of circulars issued by the Board, segregation of inputs for dutiable and non-dutiable products.

Analysis:
The case involves a dispute regarding the input duty credit on Nitrogen Gas utilized in the manufacture of both dutiable and non-dutiable lamps. The respondents, unable to segregate the gas for specific uses, adopted a formula to reverse a proportionate amount of credit for the non-dutiable lamps. The original authority demanded payment representing 8% of the value of exempted lamps, citing Rule 57AD, which does not allow for credit reversal for exempted goods. The lower appellate authority, however, relied on the Supreme Court's decision in Chandrapur Magnet Wires case, setting aside the demand. The department appealed this decision, arguing that existing rules require payment for exempted goods when inputs are not segregated.

The department contended that the respondents should pay 8% of the price of exempted final products due to the lack of segregation and separate accounts, supported by a Tribunal decision and circulars issued by the Board. They argued that allowing credit reversal without a specific provision would undermine the rule. The respondents, citing the Chandrapur Magnet case, argued that the reversal was justified as per established principles. They highlighted similar Tribunal decisions supporting their stance.

Upon review, the Tribunal found that the common input was used for both types of lamps without segregation or separate accounts, aligning with the spirit of Rule 57AD. They agreed with the respondents that the Chandrapur Magnet case's principle applied, emphasizing the impossibility of segregation. The Tribunal noted the reasonableness of the formula used by the respondents and deemed the demanded amount unjust considering the actual inadmissible credit. They distinguished the Maa Kamakhya Marbles case cited by the department, emphasizing the applicability of the Chandrapur Magnet decision and the absence of relevant provisions in the circulars.

Ultimately, the Tribunal upheld the lower appellate authority's decision, dismissing the department's appeal as the reversal of credit before clearance of exempted goods was deemed reasonable and in line with established legal principles.