2017 (3) TMI 298 - AT - Central Excise

CENVAT credit - whether the respondent/assessee is liable to pay 8% /10% of value of exempted goods when they have already reversed the credit taken in respect of inputs used in manufacture of exempted products? - Held that - the respondent having reversed the proportionate credit cannot be compelled to pay 8%/10% of the value of the clearances of exempted goods - appeal dismissed - decided against Revenue.

Summary

Issues:
- Department's appeal against the order setting aside demand interest and penalty imposed by Commissioner (Appeals) for using inputs for manufacturing both dutiable and exempted goods without maintaining separate accounts.

Analysis:
The case involved a dispute where the department filed an appeal against the order passed by the Commissioner (Appeals) setting aside the demand interest and penalty imposed on the respondent, who were manufacturers of Aerated Waters, Mineral Water, and Fruit Juice based drinks. The department alleged that the respondent used inputs for manufacturing both dutiable and exempted goods without maintaining separate accounts, leading to a demand of ?24,09,670/- along with interest and penalties. The original authority confirmed the demand, interest, and penalties, including a separate penalty under Rule 15 of CENVAT Credit Rules, 2004.

In the appeal, the department argued that as per Rule 6(2) of CENVAT Credit Rules, 2004, the respondent was required to maintain separate accounts for inputs used in manufacturing dutiable and exempted products. The department contended that since the respondent did not maintain separate accounts for inputs like Furnace Oil used in the production of both types of goods, they were liable to pay 10% of the duty on clearances of exempted products. The department further claimed that the Commissioner (Appeals) erred in setting aside the demand and penalties, citing relevant legal precedents to support their argument.

On the other hand, the respondent's counsel argued that even though separate accounts were not maintained for the common input, the respondent had reversed the proportionate credit related to inputs used in manufacturing exempted products. Relying on judgments in various cases, the respondent contended that since the proportionate credit was reversed, there was no obligation to pay 8% or 10% of the value of clearances of exempted goods.

Upon hearing both parties, the Member (Judicial) analyzed the issue at hand, considering whether the respondent should pay 8% or 10% of the value of exempted goods despite reversing the credit taken for inputs used in manufacturing those products. The Member referred to relevant legal precedents, including judgments from the Honorable High Court of Madras and other cases, where a similar issue was addressed. Ultimately, the Member held that since the respondent had reversed the credit taken for inputs used in manufacturing exempted products, they were not liable to pay 8% or 10% of the value of clearances of exempted goods. The appeal by the department was deemed devoid of merit and dismissed accordingly.