2016 (1) TMI 268 - AT - Central Excise

Availment of CENVAT Credit - Non maintenance of separate account - Held that - There is no finding of the lower authorities that they have reversed the credit used on the exempted finished goods as contended by the appellants. We find that, in view of the retrospective amendment of Rule 6 (3) (b) of Cenvat Credit Rules by Finance Act, 2010, the appellants were entitled to reverse the proportionate Cenvat credit attributable to the quantum of input used in or in relation to manufacture of exempted final product. This issue is settled by the decisions of the Tribunal 2015 (10) TMI 2325 - CESTAT NEW DELHI and the High Court 2011 (2) TMI 575 - GUJARAT HIGH COURT - minor discrepancies on the reversal of the credit with the statement submitted by the appellant. In our considered view, the Adjudicating Authority should examine the reversal of credit - Decided in favour of assessee.

Summary

Issues:
1. Alleged failure to maintain separate accounts for raw materials used in dutiable and exempted finished goods.
2. Demand of recovery under Rule 6 (3) (b) of Cenvat Credit Rules, 2001/2004.
3. Appeal rejection by Commissioner (Appeals).
4. Contention regarding reversal of Cenvat credit on exempted finished goods.
5. Application of retrospective amendment of Rule 6 (3) by Finance Act, 2010.
6. Verification of credit reversal by Adjudicating Authority.

Analysis:
1. The appellants, engaged in manufacturing Pipe Fittings, faced allegations of not maintaining separate accounts for raw materials used in dutiable and exempted finished goods. A Show Cause Notice was issued to recover an amount in relation to exempted finished goods clearance, leading to confirmation of demand by the Adjudicating Authority and subsequent rejection of the appeal by the Commissioner (Appeals).

2. The appellant debited Cenvat Credit on inputs used for exempted finished goods, citing relevant legal decisions. The Tribunal found that the main contention was the absence of evidence regarding the reversal of credit on exempted goods. The retrospective amendment of Rule 6 (3) by the Finance Act, 2010 allowed manufacturers to reverse proportionate Cenvat credit for inputs used in exempted final products, as established in previous Tribunal and High Court decisions.

3. The Tribunal referenced the case of M/s IPCA Laboratories Ltd., highlighting the manufacturer's entitlement to reverse Cenvat credit attributable to inputs used in exempted final products. The judgment emphasized that the appellant had foregone the credit, complying with the rule, and therefore, the demand under Rule 6(3) (b) was deemed unnecessary. The Tribunal set aside the impugned order, allowing the appeal.

4. The Learned Authorised Representative for the Revenue pointed out minor discrepancies in the credit reversal process, prompting the Tribunal to direct the Adjudicating Authority to examine the reversal of credit thoroughly to ensure compliance with the law.

5. Consequently, the appeal filed by the appellant was allowed, contingent upon the Adjudicating Authority's verification of the credit reversal process in accordance with legal requirements. The judgment highlighted the importance of adhering to the retrospective amendment and ensuring proper verification of credit reversal to avoid unnecessary demands.