2005 (10) TMI 177 - AT - Central Excise

Summary

Issues:
1. Whether the appellants maintained separate accounts for inputs used in the manufacture of exempted goods?
2. Whether the appellants correctly reversed credit for fuel oil used in the manufacture of exempted pulp?
3. Was the demand notice issued by the Commissioner valid?
4. Was the penalty imposed by the Commissioner justified?
5. Did the Commissioner correctly apply Rule 6(3)(b) of the Cenvat Credit Rules?
6. Was the valuation rule applied by the Commissioner appropriate?

Analysis:

1. The appellants claimed to maintain separate accounts for inputs used in the manufacture of dutiable paper and paper board, availing credit only for such inputs. They argued that they had separate records for sulphuric acid used in the manufacture of exempted pulp, indicating compliance with Rule 6(3)(b) of the Cenvat Credit Rules. The Tribunal found that the appellants did maintain separate accounts for certain inputs, contrary to the allegations in the show cause notice. The Tribunal held that the appellants' practice of maintaining separate records for specific inputs demonstrated compliance with the rule.

2. Regarding the reversal of credit for fuel oil used in the manufacture of exempted pulp, the Tribunal noted that Rule 6(3)(b) did not apply to fuel inputs. Citing precedents, the Tribunal emphasized that the provision did not restrict or require reversal of credit for fuel used as part of the manufacturing process. As there was no finding that the furnace oil was not used as fuel, the objection to credit eligibility and subsequent recovery at 8% was deemed invalid.

3. The show cause notice issued by the Commissioner proposed a demand based on Rule 6(3)(b) of the Cenvat Credit Rules. However, the Tribunal found that the nature of the goods stored in a tank did not warrant the application of this rule. Therefore, the Tribunal set aside the Commissioner's order invoking Rule 6(3)(b) for the demand.

4. The Commissioner imposed a penalty under Rule 13 of the Cenvat Credit Rules. However, since the Tribunal found no basis for the reversal or recovery of any amount under Rule 6, it held that the penalty could not be sustained. Consequently, the Tribunal set aside the penalty imposed by the Commissioner.

5. The Tribunal also addressed the applicability of valuation rules, specifically Rule 9 of the Central Excise Valuation Rules, 2000. It determined that Rule 8, not Rule 9, should have been applied in this case. The Tribunal emphasized that Rule 6(3)(b) of the Cenvat Credit Rules did not distinguish between related and independent sales for valuation purposes. Therefore, the Tribunal concluded that the basis of the show cause notice on valuation was not valid.

6. In light of the above findings, the Tribunal allowed the appeal, setting aside the Commissioner's order and pronouncing the entire judgment in favor of the appellants.