2018 (11) TMI 908 - AT - Central Excise

CENVAT Credit - manufacture of dutiable as well as exempt goods - non-maintenance of separate records - Rule 6 of CCR - Held that - Rule 6 covered the exempted goods also and no specific provisions is there for the goods where the provisions of goods at concessional rate of duty for manufacturer excisable goods Rule 2001 are also required to be followed - The law is very clear that if any input, input services or capital goods find place in manufacture of goods which are exempted from payment of central excise duty in that case, the manufacture is legally required to reverse back the 6% of the value of clearances from the accumulated Cenvat credit - The provisions are very clear that manufacturer is also free to maintain separate account of inputs and the credits thereon for both dutiable as well as exempted goods and in that case the requirement of 6% of the value of clearances is need not to be followed. In this case, since the appellants have not maintain separate account of Cenvat credit availed on exempted as well as dutiable final products, hence, legally they are required to reverse back the 6% of value of clearances of the exempted goods from the Cenvat credit - the appellant are legally required to reverse back the input credit availed on the inputs going into the exempted final products. Penalty - Held that - since before the issue of the show cause notice itself the appellants have reversed back the proportionate Cenvat credits and we do not find any malafide intention on the part of the appellant for intentional attempt to evade or mis-use Cenvat credit - penalty under Rule 15 of Cenvat Credit Rules readwith Section 11AC of Central Excise Act, 1944 not warranted. Appeal allowed in part.

Summary

Issues Involved:
1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004.
2. Requirement to reverse Cenvat credit on exempted goods.
3. Imposition of penalty under Rule 15 of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004:
The appellants argued that Rule 6 of the Cenvat Credit Rules, 2004, did not apply to their case as the goods were cleared under Notification No. 65/95-CE, which provides a conditional exemption benefit. They contended that the exemption is available to the recipient of the goods and not to the manufacturer. The Department, however, believed that the appellants should have reversed Cenvat credit at 6% of the value of the exempted goods since they did not maintain separate accounts for Cenvat credit availed on exempted and dutiable goods.

2. Requirement to Reverse Cenvat Credit on Exempted Goods:
The Tribunal examined Rule 6 and noted that it requires manufacturers to reverse 6% of the value of clearances of exempted goods if separate accounts are not maintained. The Tribunal referenced judgments such as CCE, Calcutta-IV vs. Hastings Jute Mill and CCE, Jaipur-I vs. Parasrampuria Synthetics Ltd., which supported the argument that clearances under Chapter X procedures are not the same as clearances of wholly exempted goods. The Tribunal concluded that the appellants were required to reverse the input credit availed on inputs used in exempted final products.

3. Imposition of Penalty:
The appellants had already reversed the proportionate Cenvat credit before the issuance of show cause notices, which demonstrated their bonafides. The Tribunal noted the absence of malafide intention to evade or misuse Cenvat credit. Citing the case of Mercedez Benz India (P) Ltd. vs. CCE, Pune-I, the Tribunal held that the objective of Rule 6 is to prevent the availing of Cenvat credit on inputs used in exempted goods. Since the appellants complied with this by reversing the credit proportionately, the imposition of a penalty was deemed unnecessary.

Conclusion:
The Tribunal held that the appellants were legally required to reverse the input credit availed on inputs used in exempted final products. However, since they had already reversed the proportionate amounts and there was no malafide intention, the penalty under Rule 15 read with Section 11AC was not justified. The order-in-original was modified, and the appeal was partly allowed.