2015 (10) TMI 2325 - AT - Central Excise

Applicability of Rule 6(3)(b) - Whether just because the appellant did not maintain separate account and inventory of the input services meant for dutiable and exempted final product as per the provision of Rule 6(2) the provisions of Rule 6(3)(b) providing for payment of an amount equal to 10% of sale value of the exempted final product would be applicable - Held that - w.e.f. 01.03.2008 Rule 6(3) had been amended to give an additional option to a manufacture manufacturing dutiable as well as exempting final product by using common cenvat credit availed input/ input services and this additional option was to reverse the proportionate cenvat credit attributable to input/ input services used in or in relation to manufacture of exempted final product. The proportionate amount of cenvat credit attributable to the input/ input services used in or in relation to manufacture of exempted final product was to be calculated as per the formula prescribed in Rule 6(3A). By Finance Act, 2010, the above provisions were made retrospectively applicable. Hon ble Gujarat High Court in case of Sh. Rama Multitech Ltd. vs UOI reported in 2011 (2) TMI 575 - GUJARAT HIGH COURT has held that even if a separate account have not been maintained, in view of retrospective amendment by Finance Act, 2010, a manufacturer using common inputs in or in relation to manufacture of dutiable as well as exempted final product would be entitled to reverse the proportionate cenvat credit. In view of this position, during the period of dispute the option of paying an amount equal to 10% of the sale value of the exempted goods cannot be forced upon the appellant and the appellant would be entitled to reverse the cenvat credit attributable to the inputs/ input services used in or in relation to the manufacture of the exempted final product. - In view of the retrospective amendment introduced by Finance Act, 2010, the appellant were entitled to reverse the proportionate cenvat credit attributable to the quantum of input services used in or in relation to manufacture of exempted final product and by foregoing this credit, they have complied with this obligation. In view of this the impugned order is not sustainable. The same is set aside - Decided in favour of assessee.

Summary

Issues:
1. Whether the appellant complied with the provisions of Rule 6(2) of Cenvat Credit Rules, 2004 regarding maintaining separate accounts for dutiable and exempted final products?
2. Whether the provisions of Rule 6(3)(b) apply for payment of an amount equal to 10% of the sale value of the exempted final product?
3. Whether the retrospective amendment to Rule 6(3) by Finance Act, 2010 impacts the case?

Analysis:
1. The appellant, a pharmaceutical manufacturer, used 6 common input services for both dutiable and exempted final products. They did not maintain separate accounts for these products as required by Rule 6(2). The Department demanded a significant amount under Rule 6(3)(b) due to this non-compliance.

2. The appellant argued that the retrospective amendment to Rule 6(3) by Finance Act, 2010 allowed manufacturers to reverse proportionate credit even without separate accounts. The appellant had foregone credit for exempted final products, and thus, Rule 6(3)(b) should not apply. The Commissioner's order was challenged on this basis.

3. The Tribunal noted the retrospective applicability of the amended Rule 6(3) and cited a relevant judgment supporting the appellant's position. The appellant's compliance with the rule by foregoing credit for exempted products was considered sufficient, rendering the demand under Rule 6(3)(b) invalid. The Tribunal set aside the Commissioner's order and allowed the appeal in favor of the appellant.