2012 (11) TMI 636 - AT - Central Excise

Cenvat credit common input used for dutiable and exempted goods non-maintenance of separate accounts Revenue proposed to demand 10% of the value of exempted products as per provision in rule 6(3). For certain period, the amount demanded is 5% in view of change in the rate prescribed under rule 6(3) of CENVAT Credit Rules, 2004 Held that - When an assessee gave a calculation of credit attributable to the inputs used in the manufacture of exempted products, the only option available to Revenue was to either accept the calculation or say what is wrong with the calculation and give Revenue s calculation with proper basis and ask the assessee to rebut Revenue s calculation. It was no longer open to demand 10% of the price or 5% of the price as the case may be of the exempted products - matter remanded back to the adjudicating authority for calculating the amount to be reversed correctly after giving proper reason for rejecting the method given by the assessee

Summary

Issues:
1. Delay in filing the appeal.
2. Dispute regarding the use of inputs in manufacturing exempted and dutiable products.
3. Applicability of retrospective amendment in CENVAT Credit Rules, 2004.
4. Proper reversal of credit for inputs used in manufacturing exempted products.

Analysis:
1. The tribunal considered a delay of 56 days in filing the appeal, attributed to a change in the company's management. The appellant explained that the delay was not due to negligence, leading to the condonation of the delay and allowance of the COD application.

2. The dispute centered on the appellant using inputs for manufacturing both exempted and dutiable products without following the procedures under rule 6 of the Cenvat Credit Rules, 2004. The Revenue proposed a demand based on rule 6(3), initially at 10% and later at 5% due to a rate change. The appellant contended that the retrospective amendment by the Finance Act, 2010 applied to the relevant period, and the reversal of credit for inputs used in exempted products was sufficient to discharge their liability.

3. The appellant argued that even before the retrospective amendment, they had followed the rule in force for reversing credit and had systems in place to quantify inputs used in exempted products accurately. However, the Revenue was not satisfied with the procedure followed by the appellant, leading to the demand for 10% or 5% of the price of exempted goods. The tribunal noted the need to examine whether the credit had been properly reversed.

4. After considering arguments from both sides, the tribunal highlighted the impact of the amendment to Rule 6 by the Finance Act, 2010. It emphasized that Revenue could no longer demand a percentage of the price of exempted products if the assessee provided a calculation of credit attributable to such inputs. The tribunal found that the order had not been passed properly and decided to set aside the impugned order, remanding the matter back to the adjudicating authority for a correct calculation of the amount to be reversed, with proper reasons for rejecting the appellant's method.

5. The tribunal allowed the appeal, waived the requirement of predeposit for hearing, and remanded the matter for recalculating the credit to be reversed. It directed the adjudicating authority to communicate Revenue's method to the appellant and provide an opportunity for the appellant to be heard on the matter. Both the stay petition and appeals were allowed accordingly.