2009 (5) TMI 435 - AT - Central Excise

Cenvat Credit- The appellants challenge the order passed by the Commissioner of Central Excise, Jalandhar, whereby the demand and penalty confirmed. The demand of duty has been confirmed on the ground that the inputs used in the manufacture of exempted goods are not identifiable at the first stage and the accounts maintained by the appellants are not in consonance with Rule 6(2) and, therefore, demand for 10% of the value of exempted of goods payable under Rule 6(3)(b) of the said Rules is warranted. Held that- it cannot be said that the appellants have not maintained the accounts in respect of cenvated inputs and non-cenvated inputs. What was necessary for the authorities to ascertain from his account, whether it discloses the accounts pertaining to the receipt, consumption and inventory of the inputs used in the manufacture of dutiable products separately from those used in the manufacture of exempted products. Indeed, the impugned order nowhere discloses any such exercises having been done by the authorities. On the contrary, the findings in the impugned order is to the effect that, the case of the Department is that reported maintenance of separate accounts is assumption based only and not on factual basis...... . From the above, it is clear that not only the inputs which are utilized in the manufacture of exempted goods should be identifiable or its quantity should also be ascertained at the first stage itself i.e at the time of receipt of inputs which are used in the manufacture of exempted goods. On this count itself, the impugned order is liable to be set aside and the matter is remanded to the Commissioner to consider whether the accounts maintained by the appellants satisfy the requirement of Rule 6(2) bearing in mind the observations hereinabove. Hence, the appeal succeeds.

Summary

Issues Involved:

1. Compliance with Rule 6(2) of the Cenvat Credit Rules, 2004.
2. Justification for the demand of duty under Rule 6(3)(b) and Section 11A of the Central Excise Act, 1944.
3. Imposition of interest under Rule 14 and Section 11AB.
4. Imposition of penalty amounting to Rs. 60,00,000/-.

Issue-wise Detailed Analysis:

1. Compliance with Rule 6(2) of the Cenvat Credit Rules, 2004:

The appellants argued that they maintained separate accounts for the receipt, consumption, and inventory of inputs meant for dutiable and exempted goods, satisfying the requirements of Rule 6(2). They contended that the Commissioner failed to consider this factual position and that the rule does not prescribe a specific manner for maintaining such accounts. The Department, however, insisted on strict compliance with Rule 6(2) and argued that the appellants' accounts did not meet the necessary standards, thus warranting action under Rule 6(3).

2. Justification for the demand of duty under Rule 6(3)(b) and Section 11A of the Central Excise Act, 1944:

The demand for duty amounting to Rs. 2,25,35,143/- was based on the assertion that the appellants did not maintain separate accounts as required under Rule 6(2). The appellants countered that they had reversed the credit on inputs transferred to the non-cenvatable account, which should satisfy the legal requirements. The Tribunal noted that Rule 6(2) mandates maintaining separate accounts but does not prescribe a specific form. It emphasized that the accounts should clearly distinguish between inputs for dutiable and exempted goods, allowing verification by the Department.

3. Imposition of interest under Rule 14 and Section 11AB:

The interest demand was linked to the alleged non-compliance with Rule 6(2). The Tribunal highlighted that the proper investigation into whether the accounts maintained by the appellants disclosed the receipt, consumption, and inventory of inputs separately was necessary. The absence of such an investigation led to the conclusion that the interest demand was premature.

4. Imposition of penalty amounting to Rs. 60,00,000/-:

The penalty was imposed due to the perceived failure to comply with Rule 6(2). The Tribunal observed that the Commissioner did not adequately analyze the accounts to ascertain whether they met the requirements of Rule 6(2). It emphasized that the accounts should allow the Department to distinguish between cenvated and non-cenvated inputs without facilitating fraud or administrative inconvenience.

Conclusion:

The Tribunal set aside the impugned order and remanded the matter to the Commissioner for fresh consideration. It instructed the Commissioner to determine whether the accounts maintained by the appellants satisfied Rule 6(2) requirements, bearing in mind the Tribunal's observations. The appeal was thus disposed of, with the Commissioner tasked to decide the issue afresh in accordance with the law.