2016 (6) TMI 1089 - AT - Central Excise

Reversal of cenvat credit - Demand at the rate of 8% of their clearances of their exempted goods during the period from April, 199 to June 2000 - Held that - As per section 70 of Finance Act, 2010 an option was given to the assessee if they reverse prorata credit availed on inputs. In that circumstance, reversal of credit shall be sufficient and no penalty is imposable on the appellant. In this case also the appellant has already reversed the whole credit availed by them instead of prorate credit, the same is sufficient. In the circumstances, we set aside the impugned order demanding an amount of 8% on the clearance of exempted goods. Reversal of the credit made by the appellant is sufficient but the appellant is directed to pay interest for the intervening period as per applicable rate within the period of 30 days from today. In these circumstances, no penalty is imposable on the appellant.

Summary

Issues:
1. Demand of 8% on clearance of exempted goods
2. Maintainance of separate accounts for inputs used in dutiable/exempted final products
3. Imposition of interest and penalty under section 11AC

Analysis:

Issue 1: Demand of 8% on clearance of exempted goods
The appellant was manufacturing both dutiable and exempted final products without maintaining separate accounts for inputs used in their production. A show cause notice was issued demanding 8% of the clearance of exempted goods during a specific period. The appellant contested this demand, arguing that they had reversed the entire amount of credit availed on inputs used in both types of products, making the demand unnecessary. The tribunal, considering the provisions of the Finance Act, 2010, held that the reversal of the entire credit by the appellant was sufficient to negate the demand of 8% on clearance of exempted goods. The tribunal set aside the impugned order on this issue.

Issue 2: Maintainance of separate accounts for inputs used in dutiable/exempted final products
The lack of separate accounts for inputs used in the manufacture of dutiable and exempted final products led to the dispute regarding the demand of 8% on clearance of exempted goods. The appellant's argument that the reversal of the entire credit availed on inputs was adequate in this situation was accepted by the tribunal, emphasizing the importance of maintaining clear records to avoid such disputes in the future.

Issue 3: Imposition of interest and penalty under section 11AC
The appellant was also facing the imposition of interest and penalty under section 11AC of the Central Excise Act, 1944. The tribunal ruled that since the appellant had already reversed the entire credit availed on inputs, the penalty was not imposable on them. However, the tribunal directed the appellant to pay interest for the intervening period at the applicable rate within 30 days. Consequently, no penalty was imposed on the appellant in this regard.

In conclusion, the tribunal disposed of the appeal, setting aside the demand of 8% on clearance of exempted goods due to the appellant's reversal of the entire credit availed on inputs. The importance of maintaining separate accounts for inputs used in different types of products was highlighted, and the tribunal clarified the implications of the Finance Act, 2010 on such situations.