2025 (1) TMI 532 - AT - Central Excise

Availment of Cenvat credit, both on inputs as well as capital goods, when the final goods are exempted - use of common inputs for manufacture of partly exempted and partly dutiable goods - HELD THAT - The Adjudicating Authority, inter alia, observed that availing of Cenvat credit amounting to Rs.42,34,504/- on raw materials exclusively used in the manufacture of exempted goods viz., lateral pipes and drippers, there is a clear contravention of the provisions of Rule 6(1) of CCR. She also observed that the provisions of Rule 6(2) of CCR are available only in respect of common inputs and not in respect of inputs used exclusively in the manufacture of exempted goods. In so far as non-fulfilment of requirement under Rule 6(2) of CCR is concerned, where the inputs were used both in the manufacture of dutiable goods as well as exempted goods, after going through the submissions and evidence, the Adjudicating Authority found that the appellant has not fulfilled all the conditions required under Rule 6(2) of CCR and they have not chosen the option under Rule 6(2), the appellant will be required to comply with Rule 6(3)(b) of CCR and pay the amount equivalent to 10% of the price of the exempted goods cleared from the factory and since the appellant has not paid the same, the amount is required to be recovered as they have contravened the provisions of Rule 6(3) of CCR. The Adjudicating Authority has given a very reasoned order consistent with the statutory provisions for upholding the demand of the department except to the extent of allowing abatement of actual duty paid on the exempted goods against the demand under provisions of Rule 6(3) read with Rule 14 of CCR. Therefore, there are no reason to interfere with the impugned order on this count as the Adjudicating Authority has rightly sustained the demand against the appellant raised vide SCN dt.02.06.2010. Conclusion - i) Cenvat credit cannot be availed for inputs and capital goods used exclusively for exempted goods and highlights the necessity to comply with Rule 6 procedures when using common inputs. ii) The Adjudicating Authority has rightly allowed the abatement. iii) The total demand confirmed would be duly adjusted after working out the actual payment of duty on the exempted goods by the appellant. The impugned order upheld - appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

Whether the appellant is entitled to avail Cenvat credit on inputs and capital goods when the final goods are exempted from duty.
Whether the appellant complied with Rule 6 of the Cenvat Credit Rules, 2002 (CCR) when using common inputs for both exempted and dutiable goods.
Whether the adjustment of duty paid on exempted goods against the Cenvat credit demand is permissible under the law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Availment of Cenvat credit on inputs and capital goods for exempted goods

Relevant legal framework and precedents: The Cenvat Credit Rules, 2002, specifically Rule 6(1) and Rule 6(4), prohibit availing Cenvat credit on inputs and capital goods exclusively used in the manufacture of exempted goods.
Court's interpretation and reasoning: The court noted that the appellant contravened Rule 6(1) by availing credit on inputs used exclusively for exempted goods. Similarly, availing credit on capital goods used solely for exempted goods violated Rule 6(4).
Key evidence and findings: The appellant availed Cenvat credit amounting to Rs.42,34,504/- on inputs and Rs.23,48,278/- on capital goods used exclusively for exempted goods.
Application of law to facts: The court applied Rule 14 of CCR to recover the wrongly availed credits.
Treatment of competing arguments: The appellant did not present any arguments due to absence; the court relied on the Adjudicating Authority's findings.
Conclusions: The court upheld the demand for recovery of the Cenvat credit availed in contravention of the CCR.

Issue 2: Compliance with Rule 6 of CCR for common inputs

Relevant legal framework and precedents: Rule 6(2) and Rule 6(3) of CCR require manufacturers using common inputs for both exempted and dutiable goods to follow specific procedures.
Court's interpretation and reasoning: The appellant failed to fulfill the conditions under Rule 6(2) and did not choose the option under Rule 6(3)(b), necessitating payment of 10% of the price of exempted goods.
Key evidence and findings: The appellant did not pay the required amount under Rule 6(3)(b).
Application of law to facts: The court found that the appellant contravened Rule 6(3) by not paying the requisite amount.
Treatment of competing arguments: The absence of the appellant led the court to rely on the Adjudicating Authority's decision.
Conclusions: The court upheld the requirement for the appellant to pay the amount as per Rule 6(3)(b).

Issue 3: Adjustment of duty paid on exempted goods

Relevant legal framework and precedents: The legal question was whether the adjustment of duty paid on exempted goods against the Cenvat credit demand is permissible.
Court's interpretation and reasoning: The court found that the Adjudicating Authority's decision to allow such adjustment was consistent with the statutory provisions.
Key evidence and findings: The duty was indeed paid by the appellant on the exempted goods.
Application of law to facts: The court agreed with the adjustment, as the duty had been paid, and no refund claim was filed by the appellant.
Treatment of competing arguments: The Revenue's argument against the adjustment was dismissed, as the factual matrix supported the Adjudicating Authority's decision.
Conclusions: The court upheld the adjustment of duty paid on exempted goods against the Cenvat credit demand.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "We do not find any reason to interfere with the impugned order on this count as the Adjudicating Authority has rightly sustained the demand against the appellant."
Core principles established: The judgment reinforces the principle that Cenvat credit cannot be availed for inputs and capital goods used exclusively for exempted goods and highlights the necessity to comply with Rule 6 procedures when using common inputs.
Final determinations on each issue: The court upheld the demand for recovery of Cenvat credit, the requirement to pay under Rule 6(3)(b), and the adjustment of duty paid on exempted goods.

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