2009 (8) TMI 224 - HC - Central Excise

Common inputs used in dutiable as well as exempted product - Whether the Hon ble Tribunal was right in allowing the assessee for reversal of credit taken, instead of insisting upon the assessee to pay an amount equal to 8% or 10% of total price of the exempted goods as per the Rules 6(3)(b) of Cenvat Credit Rules 2002? Held that Rule 6 (2) mandatorily applicable once dutiable and exempted final products manufactured from common inputs and credit can be availed only in terms of Rule 6 (3) - Assessee cannot have choice of claiming or reversing credit impugned order is not justified in holding that payment of 8% or 10% amount not required if credit is reversed on inputs used in exempted goods - It is not open to an assessee to contend that because they have chosen not to maintain the records as required, revenue authorities even against the grain of the language of the rule, must estimate the inputs used in the manufacture of final dutiable products and accordingly, pass necessary orders. It is also not possible to accept the contention that because they are familiar with the procedure of ascertaining the amount of credit, that by itself makes rule 6(3)(b) directory - Pro rata credit it is submitted has been statutorily provided in Cenvat Credit Rules 2004 with effect from 1-4-2008 and the principles and basis enshrined in those rules can be applied for the past period Held that Once there be rules in force, it is those rules which are to be applied. Rules subsequently made may be as a result of experience cannot be made retrospective unless so provided - We may also mention that hardship cannot result in giving a go-by to the language of the rule and making the rule superfluous - As noted a provision or a rule can occasion hardship to a few, that cannot result in the rule being considered as absurd or manifestly unjust. The difficulty in maintaining separate accounts had been realized by providing for a presumptive tax.

Summary

Issues Involved:
1. Whether the Tribunal was correct in allowing the assessee to reverse the credit taken instead of paying an amount equal to 8% or 10% of the total price of the exempted goods as per Rule 6(3)(b) of the Cenvat Credit Rules 2002.

Issue-wise Detailed Analysis:

1. Tribunal's Decision on Reversal of Credit vs. Payment of 8% or 10%:
The primary issue is whether the Tribunal was right in permitting the assessee to reverse the credit taken on inputs used for exempted goods, instead of insisting on the payment of 8% or 10% of the total price of the exempted goods as stipulated by Rule 6(3)(b) of the Cenvat Credit Rules 2002.

Relevant Facts:
- The respondents manufacture Vitamin A (dutiable) and animal food supplement (exempted).
- They take Cenvat credit for duty paid on inputs used in manufacturing crude Vitamin A, which is an intermediate product for both final products.
- The respondents reversed the credit on inputs used for the exempted final product before its removal from the factory.

Show Cause Notices and Tribunal's Decision:
- Three show cause notices were issued for the period March 2002 to December 2003, demanding Rs. 4,85,79,644/-.
- The Commissioner confirmed the demand and imposed an equal penalty.
- The Tribunal, by a majority decision, ruled in favor of the assessee, leading to the Revenue's appeal.

Appellant's Argument:
- Rule 6(2) mandates maintaining separate accounts for inputs used in dutiable and exempted goods.
- Failure to maintain such accounts necessitates payment under Rule 6(3).
- The Tribunal's majority decision overlooked this requirement, constituting an error of law.

Respondent's Argument:
- Maintaining separate accounts is impractical due to the intermediate product stage.
- Reversing the credit before the exempted goods leave the factory should suffice, invoking Rule 6(1).
- A strict interpretation of Rule 6(2) would cause undue hardship, contrary to the rule's purpose.

Court's Analysis:
- Rule 6(1) prohibits Cenvat credit on inputs used for exempted goods, except as allowed under Rule 6(2).
- Rule 6(2) requires separate accounts for inputs used in dutiable and exempted goods.
- Rule 6(3) applies if separate accounts are not maintained, mandating payment of a presumptive amount.
- Historical context and previous rules (e.g., Rule 57CC) support the need for clear segregation or payment of a presumptive tax to avoid accounting complexities.
- The Supreme Court's decisions in Chandrapur Magnet Wires and Ballarpur Industries do not support the respondent's interpretation of Rule 6.

Conclusion:
- The Tribunal's decision to allow reversal of credit instead of payment under Rule 6(3)(b) is incorrect.
- Rule 6(1) and Rule 6(2) must be read together, requiring separate accounts or payment of the presumptive tax.
- The assessee's method of reversing credit does not comply with the rules.

Final Judgment:
- The appeal is allowed, setting aside the Tribunal's order.
- The original order by the Commissioner is restored, enforcing the payment as per Rule 6(3)(b).

This comprehensive analysis ensures that all relevant legal terminology and significant phrases from the original judgment are preserved, providing a thorough understanding of the issues and the court's reasoning.