2017 (3) TMI 219 - AT - Central Excise

Reversal of CENVAT credit - non-maintenance of separate record for inputs used in dutiable and exempt goods - Held that - The appellant has reversed the credit taken on inputs used in production of goods cleared under end-use exemption notification. Since rule 6(3) is not applicable to appellant, reversal was the only viable option available to the appellant short of refusing to supply goods to the research institutions - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Compliance with CENVAT Credit Rules, 2004 for duty exemption under notification 10/97-CE.
2. Allegation of not maintaining separate account of inputs for excisable and exempt goods.
3. Recovery of duty, interest, and penalty under Central Excise Act, 1944.
4. Interpretation of rule 6(2) of CENVAT Credit Rules, 2004.
5. Legal principles regarding compliance with statutory procedures.
6. Distinction between dutiable and exempted goods under excise laws.
7. Applicability of rule 6(3) for reversal of credit on inputs.

Analysis:
The judgment by the Appellate Tribunal CESTAT Mumbai involved the case of M/s Electrocraft (India) Pvt Ltd, manufacturing electric motors, laboratory equipment, and parts thereof. The issue revolved around the appellant's compliance with CENVAT Credit Rules, 2004 for duty exemption under notification 10/97-CE. The appellant faced allegations of not maintaining separate accounts of inputs for excisable and exempt goods, leading to the recovery of duty, interest, and penalty under the Central Excise Act, 1944. The appellant reversed the CENVAT credit availed on inputs at the end of each year based on the proportion of exempted goods, challenging the recovery of duty and penalty.

The appellant argued that the duty exemption arose from the eligibility of the buyer and claimed compliance with rule 6(2) of CENVAT Credit Rules, 2004 by reversing the credit taken. The appellant contended that they had not contravened any provision warranting recovery of duty or penalty. Legal precedents, including a decision by the Hon'ble High Court of Madras, were cited to support the appellant's position.

The Authorized Representative relied on legal principles, emphasizing the importance of complying with statutory procedures as prescribed. Referring to judgments by the Hon'ble Supreme Court and other legal authorities, the Representative highlighted the necessity of following specified procedures without deviation. The argument centered on the retrospective compliance with alternative provisions not being permissible when Rules specify a particular procedure for compliance.

The Tribunal examined the distinction between dutiable and exempted goods under excise laws. It was noted that the appellant manufactured only dutiable goods, which might become exempt in the hands of the buyer based on certain conditions. The Tribunal emphasized the significance of reversal of credit as a means of denying the facility to oneself, especially when dealing with goods that could potentially be exempted.

The Tribunal ultimately ruled in favor of the appellant, stating that since rule 6(3) was not applicable to the appellant, reversal of credit on inputs used for goods cleared under the end-use exemption notification was a valid option. The impugned order was set aside, and the appeal was allowed, highlighting the importance of understanding and adhering to the specific provisions of the law in such cases.