2007 (2) TMI 24 - AT - Central Excise

Demand Number of cases alleged against the appellant and accordingly demands for penalty and interest on him Authority after considering the details allow the appeal with consequential relief

Issues Involved:
1. Eligibility of Cenvat credit on inputs used for both exempted and dutiable goods.
2. Treatment of education cess and automobile cess as excise duty.
3. Applicability of Rule 6(2) and Rule 6(3)(b) of the Cenvat Credit Rules.
4. Deductibility of the 8/10% amount paid under Rule 6(3)(b) from the total price charged to customers.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Inputs:
The appellants, engaged in manufacturing tractors and other dutiable items, took Cenvat credit for inputs used in both exempted tractors and dutiable goods without maintaining separate accounts. As per Rule 6(2) of the Cenvat Credit Rules, 2002/2004, they were required to pay an amount equal to 8% or 10% of the total price of exempted goods. The scrutiny revealed that credit was also taken for inputs exclusively used for exempted products, which is not permissible under Rule 6(1).

2. Treatment of Education Cess and Automobile Cess:
The appellants argued that tractors cannot be considered exempted goods because education cess and automobile cess, which are forms of excise duty, were paid on them. The Commissioner, Central Excise, Nagpur, held that cess is not a duty of excise as it is levied under an act other than the Central Excise Act, 1944. However, the Tribunal noted that Section 9(1) of the Industrial (Development and Regulation) Act, 1951, and various Supreme Court decisions (e.g., Baranagar Jute Mills v. Inspector) confirm that cess is a duty of excise. Thus, tractors are not exempted goods as they attract education cess, which is a duty of excise.

3. Applicability of Rule 6(2) and Rule 6(3)(b):
The Tribunal examined whether credit could be taken on non-common inputs used exclusively for exempted products. Previous Tribunal decisions (e.g., Hetero Labs Ltd. v. CCE) allowed credit on non-common inputs. The Tribunal held that the appellants are entitled to take credit on non-common inputs used in the manufacture of exempted products up to the date when Explanation III to Rule 6(3) came into force (16-5-2005).

4. Deductibility of the 8/10% Amount:
The Tribunal considered whether the 8/10% amount paid under Rule 6(3)(b) should be treated as a tax and thus eligible for deduction from the total price charged to customers. It was concluded that this amount is not a tax but an adjustment for credit taken on inputs used in the manufacture of exempted products. Therefore, it is not eligible for deduction.

Judgments:
- Appeal No. E/2184/06 & E/3118/06 & E/471/06: The appellants are entitled to take credit on all inputs, including those exclusively used for exempted products. Penalty imposed is set aside.
- Appeal No. E/2183/06: The appellants are not entitled to deduct the 8/10% amount from the total amount recovered from the customer. Appeal dismissed.
- Appeal No. E/471/06: It is held that tractors are not to be considered as exempted goods, but credit will be available as per the decision in Hetero Labs & Others.

Conclusion:
The Tribunal's judgment clarifies the eligibility of Cenvat credit on inputs used for both exempted and dutiable goods, the treatment of education and automobile cess as excise duty, and the applicability of Rule 6(2) and Rule 6(3)(b) of the Cenvat Credit Rules. It also establishes that the 8/10% amount paid under Rule 6(3)(b) is not a tax and thus not deductible from the total price charged to customers.

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