2015 (10) TMI 420 - AT - Central Excise

Availment of CENVAT Credit - Non maintenance of separate account - Exemption under Notification No.4/06-CE dt.1.3.06 - Held that - In terms of sub-rule (2) of Rule 6, Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or exempted services, then, the manufacturer or provider of output service shall maintain separate accounts and inventory for the receipt and consumption of inputs and input service used in or in relation to the manufacture of exempted goods/ exempted services and those used in or in relation to the manufacture of dutiable final products or providing exempted output service and take credit only on that quantity of inputs/input services which is intended for use in the manufacture of dutiable final product or providing output service on which no service tax is payable. - in course of manufacture of MS Ingots, slag dust arises as an inevitable by-product and in the present case, even if manufacturer, in accordance with the provisions of Rule 6 (2) wants to maintain separate account or inventory of inputs/input services used in the manufacture of dutiable products MS ingots and take credit only in respect of inputs and input services used in the manufacture of MS ingots, this is impossible as slag emergesd as an inevitable and unavoidable by-product. Separate account and inventory as per the provisions of Rule (2) can be maintained only when a manufacturer using common inputs/input services conciously manufactures final products one dutiable and other exempt the two separate processes. When it is impossible to comply with the provisions of sub-rule (2) of Rule 6, it would not be applicable. Sub-rule (3) of Rule 6 becomes applicable only when the manufacturer does not comply the provisions of sub-rule (2) and the provisions of sub-rule (3) would not be applicable in the cases where the sub-rule (2) is inapplicable. - same view has been taken by Hon ble High Court of Gujarat in the case of CCE, Ahmadabad-III vs. Nirma., (2012 (10) TMI 138 - GUJARAT HIGH COURT) by Bombay High Court in the case of Rallis India Ltd.(2008 (12) TMI 46 - HIGH COURT of BOMBAY)the Apex court in the case of Hindustan Zinc Ltd.(2014 (5) TMI 253 - SUPREME COURT) The appellant thus have a strong prima facie case in their favour. The requirement of pre-deposit of the amount demanded under Rule 6(3) (i), interest thereon and penalty is, therefore waived, for hearing of the appeal and recovery thereof is stayed. - Stay granted.

Summary

Issues:
Interpretation of Rule 6(3) of Cenvat Credit Rules, 2004 regarding the applicability of maintaining separate accounts for dutiable and exempted goods in the case of manufacturer of M.S. Ingots and clearance of slag dust at nil rate of duty.

Analysis:
The case involved a manufacturer of M.S. Ingots from sponge iron where slag dust, an exempted by-product, was generated during the manufacturing process. The dispute arose from the department's contention that since common inputs were used for both dutiable goods (M.S. Ingots) and exempted goods (slag dust), and separate accounts were not maintained, an amount under Rule 6(3) of the Cenvat Credit Rules, 2004 was demanded. The Deputy Commissioner confirmed the demand, leading to an appeal to the Commissioner (Appeals) who upheld the decision based on the marketability of slag dust under the amended definition of excisable goods. The appellant challenged this decision.

The appellant argued that the provisions of Rule 6(2) and Rule 6(3) were not applicable as slag dust was an unavoidable waste, citing relevant judgments. They contended that maintaining separate accounts for such unavoidable by-products was impossible, invoking the principle of Lex Non Cogit ad Impossibila. The appellant relied on judgments where similar issues were decided in their favor, emphasizing that compliance with Rule 6(2) was impossible in cases of unavoidable by-products.

The department defended the impugned order, asserting that slag dust, being marketable and exempt from duty, fell under the definition of exempted goods, thus necessitating compliance with Rule 6(3). They argued that since common cenvat credit was used for both dutiable and exempted products without maintaining separate accounts, the provisions of Rule 6(3) were correctly invoked.

The Tribunal analyzed the provisions of Rule 6(2) and Rule 6(3) in detail, highlighting that Rule 6(3) applies only when Rule 6(2) is not complied with. In cases where a by-product emerges unavoidably, maintaining separate accounts as per Rule 6(2) becomes impossible, rendering Rule 6(3) inapplicable. The Tribunal found support in judgments by various High Courts and the Apex Court, concluding that the appellant had a strong prima facie case in their favor. Consequently, the requirement for pre-deposit, interest, and penalty was waived, and the appeal was listed for final disposal.

In conclusion, the Tribunal's detailed analysis of Rule 6(3) in light of the specific circumstances of the case, supported by legal precedents, resulted in a favorable interim decision for the appellant, highlighting the importance of practical considerations in applying tax laws to manufacturing processes involving unavoidable by-products.