2018 (1) TMI 761 - AT - Central Excise

CENVAT credit - common input (furnace oil) used for manufacture of dutiable (aerated waters) as well as exempt goods (Maaza Mango) - non-maintenance of separate records - appellants contend that they have reversed proportionate credit and therefore may not be compelled to pay the 8%/10% of value of clearances - Held that - In similar set of fact, the Tribunal in the case of CCE, Trichy vs Tamil Nadu News Print & Paper Ltd 2014 (8) TMI 248 - CESTAT CHENNAI observed that when proportionate credit is reversed there is no requirement to pay 8%/10% of value of clearance - it needs to be verified whether the amount reversed would be the actual proportionate credit or not. For this limited purpose the matter requires to be remanded to the adjudicating authority. Penalty - Held that - issue is an interpretational one and had travelled up to the Hon ble Supreme Court. Further the period involves pre as well as post amendment - penalty imposed is unwarranted and requires to be set aside. Appeal allowed by way of remand.

Summary

Issues:
Interpretation of Rule 6(2) of Cenvat Credit Rule, 2004 regarding maintaining separate accounts for common inputs used in manufacturing exempted and dutiable goods. Admissibility of Cenvat Credit on fuel input used for exempted products. Applicability of penalties and retrospective amendments to provisions.

Interpretation of Rule 6(2):
The appellants manufactured both dutiable and exempted products using furnace oil as a common input without maintaining separate accounts, contrary to Rule 6(2) of Cenvat Credit Rule, 2004. The department demanded payment under Rule 6(3)(b) for the period of 4/2003 to 5/2005 due to the absence of separate records. The Ld. Counsel argued confusion during the relevant period regarding the interpretation of Rule 6(2) and cited the case of CCE vs GNFC where the Supreme Court clarified that credit is not admissible on fuel input for exempted products. The appellant reversed a portion of the credit but contended that the penalties were unjustified due to a bonafide belief. The Ld. AR maintained that the appellant availed 100% credit on furnace oil without maintaining separate accounts, making them liable for penalties under Rule 6(3)(b).

Admissibility of Cenvat Credit on Fuel Input:
The Ld. AR reiterated the findings that the appellant used furnace oil for both dutiable and exempted products without maintaining separate accounts, leading to inadmissibility of credit as per the Supreme Court ruling in the GNFC case. The Finance Act, 2010 introduced retrospective amendments allowing assessees to reverse proportionate credit within a specified timeframe, which the appellant did not comply with in this case. The Tribunal noted that the appellant's failure to exercise the option within the designated period precluded them from seeking shelter under the retrospective amendment. The Tribunal emphasized that the demand and penalties were legally justified based on the non-compliance with Rule 6(2) and subsequent amendments.

Applicability of Penalties and Retrospective Amendments:
The Tribunal considered the period from April 2003 to May 2005 and the subsequent amendment to Rule 6(2) in May 2005. The appellant availed 100% credit on furnace oil while restricting credit on other inputs to 85%. The Tribunal referenced a similar case where proportionate credit reversal negated the need for additional payments under Rule 6(3)(b). The Tribunal highlighted that the issue had reached the Supreme Court previously and involved conflicting decisions from various benches of CESTAT. Ultimately, the Tribunal modified the impugned order, upholding the irregularity in availing credit on furnace oil for exempted products but remanded the matter to verify the actual proportionate credit reversal. The penalty imposed was deemed unwarranted and set aside, considering the interpretational nature of the issue and the pre/post-amendment period involved.

In conclusion, the Tribunal partially allowed the appeal by requiring the appellant to reverse proportionate credit for furnace oil used in manufacturing exempted products and remanding the matter for further calculation. The penalty was entirely set aside based on the interpretational complexities and the appellant's bonafide belief in compliance.