2013 (11) TMI 1025 - AT - Central Excise

Reversal of credit attributable to the inputs contained in the goods prior to clearance at Nil rate of duty Following Chandrapur Magnet Wires (P) Ltd. Vs CCE Nagpur 1995 (12) TMI 72 - SUPREME COURT OF INDIA - The appellants were unable to identify the inputs attributable to the use of the exempted final products and therefore they have reversed the credit prior to the clearance of the goods. Where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty - the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid - This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products - The appellant is unable to identify the inputs used in the exempted final product and they have reversed the credit before clearance of the goods - the demand of 5% of value of the exempted goods under section 6 (3) (a) of the Cenvat Credit Rules is not sustainable order set aside Decided in favour of assessee.

Summary

Issues:
1. Demand of 5% value of exempted goods under Rule 6 (3) (ii) of CCR 2004.
2. Maintainance of separate accounts for dutiable and exempted goods.
3. Applicability of Rule 6 of Cenvat Credit Rules, 2004.

Analysis:

Issue 1:
The case involved a demand of Rs.2,86,891 under Rule 6 (3) (ii) of CCR 2004, equal to 5% of the value of goods cleared at NIL rate of duty. The appellant had reversed the credit amount attributable to inputs used in the manufacture of exempted goods prior to clearance. The original authority confirmed the demand, but the appellant contended they were unable to identify inputs for exempted goods. The Tribunal examined the relevant provisions of Rule 6 and cited precedents to support the appellant's position. Ultimately, the Tribunal found the demand not sustainable and set aside the impugned orders.

Issue 2:
The appellant argued they couldn't maintain separate accounts for dutiable and exempted goods, leading to the reversal of credit before goods clearance. The Revenue contended that without maintaining proper accounts as per Rule 6 (3A), the appellant must pay 5% of the value of exempted goods cleared. The Tribunal referred to the Hon'ble Supreme Court's decision and a departmental circular, allowing credit of duty paid on all inputs used in exempted goods if not reasonably possible to segregate inputs. The Tribunal held in favor of the appellant, citing their inability to identify inputs for exempted goods.

Issue 3:
The Tribunal analyzed Rule 6 of Cenvat Credit Rules, 2004, emphasizing the obligation of manufacturers to maintain separate accounts for dutiable and exempted goods. The appellant's inability to segregate inputs led to the reversal of credit before goods clearance. The Tribunal referred to relevant case laws cited by both parties, highlighting the contextual differences. Ultimately, the Tribunal found the demand for 5% of value of exempted goods unsustainable under Rule 6 (3) (a) and allowed the appeal with consequential relief.

In conclusion, the Tribunal's detailed analysis of the issues surrounding the demand for 5% value of exempted goods under Rule 6 (3) (ii) of CCR 2004, the maintenance of separate accounts, and the applicability of Rule 6 of Cenvat Credit Rules, 2004, resulted in setting aside the impugned orders and allowing the appeal in favor of the appellant.