2019 (2) TMI 570 - AT - Central Excise

CENVAT credit - inputs used exclusively in the manufacture of exempted goods manufactured on job work basis - demand of 6% / 8% amount under Rule 6(3) of Cenvat Credit Rules, 2004 - Held that - In the present case, the fact is also not under dispute that the appellant are using certain other inputs such as Zinc, Furnace Oils, Consumables, certain grades of angles/ channels etc. which are commonly used in the manufacture of exempted goods as well as on their own goods cleared on payment of duty, therefore, it cannot be said that the goods manufactured and cleared under exemption were manufactured from all the inputs which were used exclusively in such exempted goods. In the present case the appellant have opted for rule 6(3)(i) according to which they have paid 6%/ 8% of the value of the exempted goods, thereafter no further demand can be made as there is no provision that once a payment is made under Rule 6(3) (i) then further cenvat credit is required to be reversed - As regard the explanation (ii) given in sub Rule (3) of Rule 6, this explanation applies only in such cases where the exempted goods is manufactured wholly from the inputs which are exclusively used in the manufacture of such exempted goods. However, in the present case some of the inputs are common which were used in the manufacture of dutiable final product as well as exempted goods, therefore, the explanation II is not applicable in the present case. Moreover, the explanation II is applicable only with reference to Rule 6(2), however the appellant have not opted for said Rule and they have opted for sub Rule (3) of Rule 6 wherein unambiguous provision for payment of 6% / 8% of the value of exempted goods is provided. It is apparent that there is no exclusive input which were used in only exempted goods, for this reason also the demand applying Rule 6 (1) and (2) will not sustain - Since various consumables inputs were used in the manufacture of exempted goods well as dutiable goods, the option of payment of 8% / 10% was held correct. Time limitation - Held that - The department was well aware about the entire working of the appellant as with reference to payment of 6% / 8% the appellants were issued SCN disputing the valuation, therefore, there is no suppression of fact on the part of the appellant - demand for the extended period beyond normal period is also not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant can avail cenvat credit on duty paid on various inputs used in exempted job work activities and pay 6% / 8% amount under Rule 6(3) of Cenvat Credit Rules, 2004?

Analysis:
The case involves the appellant engaged in manufacturing activities and undertaking job work for a company, availing cenvat credit on inputs used for both dutiable and exempted goods. The dispute arises as the department contends that cenvat credit cannot be availed on inputs exclusively used for exempted goods. The appellant argues that common inputs were used for both types of goods and have followed the procedure to pay 6% / 8% under Rule 6(3)(i). They assert that once this payment is made, no further demand for cenvat credit can be raised. The department's demand is based on the assertion that certain inputs were exclusively used for exempted goods, invoking Rule 6(1) & (2) of the Cenvat Credit Rules, 2004.

The appellant further argues that the inputs used for exempted goods were also used in the production of waste and scrap cleared on payment of duty, indicating no exclusive use for exempted goods. They cite previous judgments in support of their position. Additionally, they highlight that previous proceedings concluded in their favor, questioning the inconsistency in the department's stance regarding valuation and credit denial. The appellant maintains that the demand is time-barred and the penalty is unjustified.

On the other hand, the department contends that as per Rule 6(3) of the Cenvat Credit Rules, credit shall not be allowed on inputs used exclusively for exempted goods. They assert that the demand for cenvat credit confirmed is legally sound. However, the Tribunal finds that the appellant opted for the payment option under Rule 6(3)(i) by paying 6% / 8% of the value of exempted goods, which precludes further demands for cenvat credit. The Tribunal clarifies that the explanation II in Rule 6(3) applies only to cases where exempted goods are manufactured solely from inputs exclusively used for them, which is not the scenario in this case.

Ultimately, the Tribunal rules in favor of the appellant, emphasizing that after the payment under Rule 6(3)(i), no further demand for cenvat credit can be sustained. They find the demand beyond the normal period not sustainable, citing lack of suppression of facts by the appellant. The impugned order is set aside, and the appeal is allowed.