2010 (1) TMI 401 - AT - Central Excise

Cenvat Credit- The appellants are engaged in the manufacture of Steel Patta Patti and they clear the same on the payment of duty. Since the appellants are not maintaining separate account in respect of inputs used in the manufacture of dutiable and exempted goods appellants were required to pay 10% of the value as per the provisions of Rule 6(3) of Cenvat Credit Rules. Instead of paying 10% the appellants paid 16% by reversing cenvat credit and it was informed to them that this procedure was wrong and accordingly show cause notice was issued requiring the appellants to show cause as to why the amount of Rs. 1, 13, 092/- should not be recovered from them under Section 11D of Central Excise Act 1944 and interest as applicable under Section 11DD should not be recovered from them. The Original Adjudicating Authority upheld the demand and imposed penalty of equal amount of duty demanded. On an appeal filed by the appellant Commissioner (Appeals) held that as per the provisions of Rule R (sic) of Cenvat Credit Rules appellants can pay 10% by reversing the Cenvat credit but the balance amount is to be paid in cash. Party is in appeal against this decision. Held that- inputs used commonly in exempted and dutiable products. Assessee paying 16% of value under Rule 6(3) of Cenvat Credit Rule 2004 by reversing Cenvat Credit. Since assessee had paid duty recovered by them to Government demand under section 11D of Central Excise Act was not sustainable.

Summary

Issues:
1. Interpretation of Rule 6(3) of Cenvat Credit Rules regarding payment of duty for dutiable and exempted goods.
2. Application of Section 11D of Central Excise Act, 1944 for recovery of duty.
3. Scope of recovery under Section 11D and requirement to pay a portion in cash.
4. Legal provision for payment of duty from PLA under Rule 6 of Cenvat Credit Rules.

Analysis:
1. The case involved a dispute regarding the payment of duty by the appellants who were engaged in the manufacture of Steel Patta Patti and also cleared steel scrap exempted from duty. The appellants did not maintain separate accounts for inputs used in the manufacture of dutiable and exempted goods. As per Rule 6(3) of Cenvat Credit Rules, they were required to pay 10% of the value. However, the appellants paid 16% by reversing Cenvat credit, leading to a demand for recovery under Section 11D of the Central Excise Act, 1944. The Original Adjudicating Authority upheld the demand and imposed a penalty equal to the duty demanded.

2. The Commissioner (Appeals) held that the appellants could pay 10% by reversing Cenvat credit, but the balance amount had to be paid in cash. The Chartered Accountant for the appellant argued that the Commissioner had exceeded the scope of the show cause notice by requiring a portion to be paid in cash. Citing a Tribunal decision in a similar case, it was argued that since the duty was paid to the Government, Section 11D was not applicable.

3. The Member (T) agreed with the Chartered Accountant, stating that the facts of the case were similar to the precedent cited. It was noted that there was no legal provision to mandate the manufacturer to pay duty from PLA only, and since there was no proposal in the show cause notice for such a requirement, the recovery under Section 11D as proposed could not be sustained. The decision of the Commissioner (Appeals) was deemed unsustainable, and the appeal by the appellant was allowed with consequential relief.

4. The judgment highlighted the importance of adherence to legal provisions and the necessity for proposals in show cause notices to be within the specified scope. The ruling clarified the application of Section 11D in cases where duty had been paid to the Government and emphasized the need for specific legal provisions to mandate payment from a particular source. Ultimately, the appeal was allowed in favor of the appellant based on the interpretation of relevant rules and precedents.