2009 (10) TMI 347 - AT - Central Excise

Inputs- Cenvat Credit- Common inputs used in exempted and dutiable goods. Water treatment chemicals and input services received and used in relation to manufacture of dutiable Limca and Sprite and exempted Mazza. Appellants reversed in Cenvat Credit relatable to inputs used in relation to Mazza manufactured and cleared the material period, after such clearance and also paid interest. Compliance of Rule 6 of Cenvat Credit Rules, 2002/2004 is achieved when credit is reversed. Demand set aside.

Summary

Issues:
Obligation under Rule 6 of Cenvat Credit Rules when availing credit on common inputs for dutiable and exempted final products without maintaining separate accounts.

Analysis:
The case involved a challenge against an order demanding recovery, interest, and penalty under Section 11A(1) of the Central Excise Act 1944, read with Cenvat Credit Rules. The Commissioner found that the appellant had utilized cenvat credit on common inputs without maintaining separate accounts for dutiable and exempted final products, leading to a demand of Rs. 4,73,73,135 along with interest and penalty. The appellant contested the demand, citing various judicial decisions to support their claim that reversing credit related to exempted final products was sufficient compliance with Rule 6 of CCR. They argued that the demand was barred by limitation and penalty unjustified due to lack of misrepresentation. The Tribunal analyzed the provisions of Rule 6 of CCR 2002 and CCR 2004, emphasizing the requirement to maintain separate accounts for common inputs used in dutiable and exempted final products. It considered the appellant's compliance with the rule by reversing credit related to exempted products post-clearance, as supported by judicial precedents.

The Tribunal highlighted the benevolent nature of the Cenvat scheme to prevent tax cascading, allowing credit on inputs used for dutiable products but not for exempted ones. It noted that reversing credit for exempted products rectifies the anomaly of allowing credit on common inputs, as legislated in Rule 6 of CCR. The Tribunal referred to various cases where compliance with Rule 6(3)(b) was deemed met upon reversing credit for exempted products, even post-clearance. It criticized excessive demands made by authorities for relatively small credit amounts, citing instances where such demands were vacated. The Tribunal found the demand in the present case unsustainable, as the Commissioner had wrongly relied on a judgment not applicable to the issue at hand. It vacated the demand and penalty, stating that the appellant's doubt about their liability did not constitute deliberate violation, and there was no evidence of dishonest conduct to evade statutory liabilities. Consequently, the impugned order was set aside, and the appeal was allowed on 23-10-2009.