2013 (8) TMI 574 - AT - Central Excise

Application of Rule 6(3) of the Cenvat Credit Rules, 2004 - Chips/modules are common inputs for both dutiable and exempted finished goods but the other major input that is plastic card are exclusively user based inputs and they cannot be used interchangeable for exempted as well as dutiable final products - Plastic card on which name, design, logo of the customers are printed - those plastic cards cannot be treated as a common input for both dutiable as well as exempted goods, But in respect of other plastic cards on which no such personal information i.e. name, design and logo and customer recorded - To be treated as common inputs for the purpose of manufacture of both dutiable as well as exempted goods. There is no percentage fixed in the Cenvat Credit Rules to decide that if dutiable goods are much below that percentage, the manufacturer will be treated as exclusive manufacturer of exempted goods. In absence of any such limit mentioned in the rule Commissioner cannot deny the benefit of Rule 6(3)(1)/ Rule 6 3 b to the appellants. Limitation - Extended period Held that - Module as well as plastic card in majority of the cases the plastic card are inputs for the manufacture of recorded as well as unrecorded smart cards. Therefore allegation of suppression or mis-declaration of inputs is not sustainable in respect of modules and majority of the plastic cards against the appellant - Also not be liable to any penalty under Section 11AC of the Central Excise Act. Plastic cards which are exclusively going to be used in the manufacture of recorded smart cards, on such quantity of the plastic cards no Cenvat credit is admissible to the appellants as these were not the common inputs for dutiable as well as exempted goods and on such inputs demand is required to be confirmed against the appellants along with interest and equal amount of penalty imposable under Section 11AC of the Act.

Summary

Issues:
- Availment of Cenvat credit on inputs used in manufacturing exempted goods
- Commonality of inputs for dutiable and exempted goods
- Time limitation for demand of Cenvat credit
- Application of penalty under Section 11AC of the Central Excise Act

Analysis:

Issue 1: Availment of Cenvat credit on inputs used in manufacturing exempted goods
The appellant, a manufacturer of smart cards, availed Cenvat credit on inputs used for both dutiable and exempted goods. The Revenue contended that the appellant primarily manufactured exempted goods and was not eligible for Cenvat credit. The appellant argued that they paid an amount equivalent to 10% of the value of exempted goods, as per Rule 6(3) of the Cenvat Credit Rules. They also highlighted an additional option for proportionate reversal of credit from April 1, 2008. The Tribunal noted the absence of a minimum limit for dutiable production under Rule 6, allowing the appellant to avail Cenvat credit.

Issue 2: Commonality of inputs for dutiable and exempted goods
The Revenue argued that inputs like plastic cards and modules were user-specific and not common for dutiable and exempted goods. The appellant contended that these inputs were common, especially plastic cards, as they were used interchangeably for both types of smart cards. The Tribunal found that while some plastic cards were exclusively for recorded smart cards, others were common inputs for both dutiable and exempted goods.

Issue 3: Time limitation for demand of Cenvat credit
The Revenue invoked the extended time limit, alleging intentional availment of ineligible credit by the appellant. However, the Tribunal found that the appellant did not suppress or misdeclare inputs for dutiable goods, as plastic cards were common inputs for both types of smart cards. Therefore, the penalty under Section 11AC of the Central Excise Act was not applicable.

Issue 4: Application of penalty under Section 11AC of the Central Excise Act
The Tribunal held that the appellant was not liable for penalty under Section 11AC, except for cases where plastic cards were exclusively used for recorded smart cards. In those instances, the appellant was not eligible for Cenvat credit, and demand, interest, and penalty were to be determined accordingly.

In conclusion, the Tribunal remanded the matter to the Commissioner for the determination of Cenvat credit, interest, and penalty after providing the appellant with an opportunity for a hearing. The judgment also referenced the eligibility of Cenvat credit for exported exempted goods based on a previous court decision.