2017 (3) TMI 1215 - AT - Central Excise

PSU - CENVAT credit - Methanol - user condition - denial of cenvat credit, wrongly availed by the Appellant on Menthol Catalyst which is an input of Methanol, on the ground that exempted Methanol has not been used in manufacture of fertilizers but in ETP plant - Held that - the credit availed by the Appellant on the inputs stands reversed. Once the credit of inputs used in exempted goods stands reversed, the demand for reversal of 8%/10% amount of value of exempted goods in terms of Rule 57 AH or Rule 6 of CCR does not sustain. Extended period of limitation - Held that - the use of Methanol by the Appellant in their ETP plant was in the knowledge of the department - the demands made by invoking extended period are time barred and are not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Demand of cenvat credit availed on inputs reversed by the Appellant
- Applicability of Rule 57AD and Rule 6 in case of dutiable and exempted products
- Time-barred duty demand
- Knowledge of department regarding the use of Methanol in ETP Plant
- Sustainability of demands made under extended period

Analysis:

The case involved a Public Sector Undertaking engaged in manufacturing Chemicals and Fertilizers, including Methanol and Nitric acid. The Appellant faced a show cause notice alleging wrongful availment of cenvat credit on Menthol Catalyst used in Methanol, which was exempted for captive use in fertilizers and other dutiable products. The demand was for an amount of ?41,11,405 for the period 2001 to 2006, along with interest and penalties. The adjudicating authority and Appellate Commissioner upheld the demand, leading to the present appeal.

The Appellant argued that they had reversed the cenvat credit on inputs even before the show cause notice, making the demand for 8%/10% of Methanol used in the ETP Plant unsustainable. They contended that Rule 57AD and Rule 6 applied only to common inputs used in dutiable and exempted products, not to products used captively for exemption. Citing relevant judgments, the Appellant asserted that Rule 6 did not apply as Methanol was not cleared/sold from the factory, and the duty demand was time-barred. They also highlighted the department's prior knowledge of Methanol use in the ETP Plant.

Upon review, the Tribunal found that once the credit on inputs used in exempted goods was reversed, the demand for the value of exempted goods did not stand. Citing precedents, the Tribunal ruled that the demand against the Appellant was not sustainable. Additionally, the Tribunal noted the department's prior awareness of Methanol usage in the ETP Plant, with overlapping periods of show cause notices. Consequently, the demands made under the extended period were deemed time-barred and unsustainable.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with any consequential reliefs. The judgment was pronounced on 20.02.2017 by Mr. Ramesh Nair, Member (Judicial) at the Appellate Tribunal CESTAT Mumbai.