2015 (10) TMI 1959 - AT - Central Excise

Denial of CENVAT Credit - Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 - Held that - Initially credit of ₹ 84,783/- had been taken in respect of certain chemicals for generation of steam and while a part of the steam was used within the factory, the remaining quantity of steam was being sold out. The steam is exempt from duty. Rule 6(3) would come into picture only if common Cenvat credit availed inputs have been used in or in relation to the manufacture of dutiable final products as well as exempted final products and in accordance with the provisions of Rule 6(2) of the Rules, separate accounts and inventories of the inputs used for the manufacture of dutiable as well as exempted final products have not been maintained. In this case, though the initially credit was taken on the chemicals used for generation of steam, the same was subsequently reversed on 19-1-2005 and this fact is not disputed. Once the credit taken is reversed without using the same, the provisions of Rule 6(2) of the Cenvat Credit Rules would not be applicable. If the provisions of Rule 6(2) are not applicable, Rule 6(3) would also be inapplicable. The entire duty demand under Rule 6(3) of the Rules is without any basis. The impugned order is, therefore, set aside. - Decided in favour of assessee.

Summary

Issues:
1. Availing of Cenvat credit for processed fabrics.
2. Reversal of Cenvat credit on inputs.
3. Compliance with Rule 6(2) and Rule 6(3) of Cenvat Credit Rules.
4. Demand of duty on exempted final product (steam).
5. Imposition of penalty.

Analysis:

1. The appellants, manufacturers of processed fabrics, availed Cenvat credit under the Cenvat Credit Rules, 2002/2004 for the period from April 2003 to December 2004. They used steam generated within the factory, part of which was sold. A show cause notice was issued by the Department for not complying with Rule 6(2) of the Cenvat Credit Rules, using common inputs for dutiable and exempted final products, resulting in a demand for payment under Rule 6(3)(b) of the Rules.

2. The Addl. Commissioner confirmed the demand, but did not impose a penalty. An appeal was filed against the demand by the appellants and by the Revenue against dropping the penal proceedings. The Commissioner (Appeals) upheld the demand and imposed a penalty equal to the demanded amount. The current appeal challenges this order.

3. The appellant argued that once they reversed the Cenvat credit, it cannot be considered as used for both dutiable and exempted final products. The Department defended the order, emphasizing the findings of the Commissioner (Appeals). The Tribunal considered the submissions and records.

4. The Tribunal acknowledged that the initial credit on inputs was reversed and not used. As per Rule 6(2) of the Rules, if the credit is reversed without utilization, the provisions of Rule 6(3) do not apply. Since separate accounts were not maintained, the Department's demand for duty on the exempted product lacked a basis. Therefore, the impugned order was set aside, and the appeal was allowed in favor of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, stating that once the Cenvat credit was reversed without utilization, the provisions of Rule 6(2) and Rule 6(3) did not apply. Consequently, the demand for duty on the exempted final product was deemed baseless, and the appeal was allowed with consequential relief to the appellant.