2024 (7) TMI 60 - AT - Central Excise

Liability to pay 5%/6% of the value of the exempted goods cleared during the period from June 2008 to March 2013 - availing common CENVAT Credit in respect of dutiable goods as well as exempted goods - non-maintenance of separate records - Rule 6(3)(ii) of the CENVAT Credit Rules, 2004 - HELD THAT - Rule 6(3A) provides that the manufacturer / provider of output service has to exercise the option by intimating in writing to the Superintendent of Central Excise giving necessary particulars. The allegation in the Show Cause Notice is that the appellant has not complied with this requirement of intimating the Department. The Tribunal in the case of Mercedes Benz India Pvt. Ltd. 2015 (8) TMI 24 - CESTAT MUMBAI had occasion to consider the very same issue and held that the requirement to inform the Department with regard to the option exercised is only procedural in nature - In the present case, it is not disputed that on being pointed out, the appellant has reversed the proportionate credit along with interest. The requirement under Rule 6(3)(ii) stands satisfied. In such circumstances, the Department ought not to have raised the Show Cause Notice demanding 5%/6% of the value of exempted goods. The demand cannot sustain - the impugned order is set aside - appeal allowed.

Summary

Issues:
1. Alleged violation of provisions contained in CENVAT Credit, 2004 by availing credit on exempted goods.
2. Demand of 5%/6% of the value of exempted goods due to failure to intimate the Department about reversing proportionate credit.
3. Interpretation of Rule 6 of the Cenvat Credit Rules, 2004 regarding maintaining separate accounts and payment/reversal options.

Issue 1: Alleged violation of provisions contained in CENVAT Credit, 2004 by availing credit on exempted goods.
The appellant, engaged in manufacturing Corrugated Cartons and Labels, was found to be manufacturing Printed Manuals falling under Tariff Heading 49019900 attracting NIL rate of duty. The Department alleged that the appellant availed CENVAT Credit on both dutiable and exempted goods, violating CENVAT Credit provisions. A Show Cause Notice was issued, demanding 5%/6% of the value of exempted goods cleared from June 2008 to March 2013. The appellant reversed the proportionate credit after being notified by Department officers. The Original Authority confirmed the demand, interest, and penalties, which was upheld by the Commissioner (Appeals).

Issue 2: Demand of 5%/6% of the value of exempted goods due to failure to intimate the Department about reversing proportionate credit.
The Department alleged that the appellant did not intimate about reversing the proportionate credit on exempted goods as per Rule 6(3)(ii) of the CENVAT Credit Rules, 2004. The appellant argued that the failure to intimate was a procedural lapse and cited a precedent where a similar issue was considered. The appellant contended that once the proportionate credit was reversed upon notification, the Show Cause Notice demanding payment was unjustified. The Tribunal noted that the requirement to inform the Department about the credit reversal option was procedural and not a substantive requirement. As the appellant had reversed the credit upon notification, the requirement under Rule 6(3)(ii) was deemed satisfied, and the Show Cause Notice demanding payment was deemed improper.

Issue 3: Interpretation of Rule 6 of the Cenvat Credit Rules, 2004 regarding maintaining separate accounts and payment/reversal options.
Rule 6 of the Cenvat Credit Rules, 2004 imposes obligations on manufacturers of dutiable and exempted goods. It prohibits CENVAT credit on inputs used in manufacturing exempted goods unless separate accounts are maintained. If common inputs are used, the manufacturer must maintain separate accounts and take credit only for dutiable goods. Rule 6(3) provides two options for manufacturers not maintaining separate accounts: pay 5%/6% of the value of exempted goods or reverse the credit on inputs for exempted goods as per Rule 6(3A). The manufacturer must inform the Department of the chosen option. In this case, as the appellant had reversed the credit upon notification, the Tribunal held that the demand for payment was unwarranted, following a precedent case. The Tribunal set aside the impugned order and allowed the appeal with consequential reliefs.