2005 (9) TMI 174 - AT - Central Excise

Cenvat/Modvat - Manufacturers of MS Pipes (Steel Pipes) - whether Rule 6(3) provide option to manufacturer whether or not maintain separate accounts? - Excisable commodity - HELD THAT - We have gone through the records of the case carefully. When a manufacturer uses common inputs in respect of dutiable and exempted products, normally he is expected to maintain separate accounts for receipt, consumption and inventory of the inputs. This is so because he could take credit only on the inputs intended for use in the manufacture of dutiable goods. This is as per Rule 6(2) of Cenvat Credit Rules, 2002. However, it is not always possible for a manufacturer to maintain separate accounts. Thus, the manufacturer need not maintain separate accounts, but he should pay 8% of the price of the exempted final products. This is as per Rule 6(3) of the Cenvat Credit Rules, 2002. A careful reading of Rule 6(3) shows that the manufacturer has the option not to maintain separate accounts. In other words, the manufacturer can choose not to maintain separate accounts and pay 8% of the price of exempted final products. When the manufacturer does that, he is perfectly complying with the Cenvat Credit Rules. In the present case, Revenue has seized certain private documents from the appellants and holds that they would be governed by Cenvat Credit Rules 6(2). In our view, this is not correct. When an option is given to the manufacturer, Revenue cannot force him to adopt a particular course. This will be against the Cenvat Credit Rules. Hence, we do not find much merit in the OIO. The same is set aside by allowing the appeal.

Summary

Issues:
1. Denial of Cenvat credit under Rule 6 of the Cenvat Credit Rules, 2002 for inputs used in the manufacture of exempted goods.
2. Imposition of interest under Rule 12 of Cenvat Credit Rules and Section 11AB of the Central Excise Rules.
3. Penalty imposed under Rule 13 of the Cenvat Credit Rules.

Analysis:
Issue 1:
The case involved the denial of Cenvat credit to the appellants for inputs used in manufacturing both dutiable and exempted goods. The Adjudicating Authority contended that separate accounts should have been maintained for such inputs. However, Rule 6(3) of the Cenvat Credit Rules, 2002 allows the manufacturer the option not to maintain separate accounts but to pay 8% of the price of the exempted final products. The Tribunal noted that the manufacturer had opted not to maintain separate accounts, making them compliant with the rules. The Tribunal emphasized that the Revenue cannot compel a manufacturer to adopt a specific approach when an option is provided, ruling in favor of the appellants and setting aside the original order.

Issue 2:
The Adjudicating Authority had also denied interest under Rule 12 of the Cenvat Credit Rules along with Section 11AB of the Central Excise Rules. However, since the Tribunal found in favor of the appellants regarding the denial of Cenvat credit, the imposition of interest was not upheld, and the original order was set aside on this aspect as well.

Issue 3:
Furthermore, a penalty under Rule 13 of the Cenvat Credit Rules was imposed on the appellants. The Tribunal's decision to set aside the original order regarding the denial of Cenvat credit also led to the dismissal of the penalty imposed under Rule 13. The Tribunal's ruling favored the appellants on all aspects raised in the appeal, providing relief from the adverse findings of the Adjudicating Authority.