2019 (2) TMI 933 - AT - Central Excise

CENVAT credit - whether the provision of Rule 6(3)(b) would apply in such a scenario when the goods stand cleared on payment of duty? - Held that - The said payment in terms of Rule 6(3)(b) is meant to neutralize the cenvat credit so availed by assessee in respect of inputs which have gone into the manufacture of the exempted goods. Such neutralization would be effective only when no duty stands paid on the final product. In case the final product has already paid the duty, there is no need for any neutralization. The Adjudicating Authority has examined the said issue only from one angle i.e. applicability of Rule 6(3)(b) in case of exempted clearance and has not taken into account the entire facts and circumstances of the case. The earlier proceedings iniated against the same assessee were dealt with by Commissioner (Appeals) who vide his order dated 20.11.2009 observed that in case of exempted goods and clearance on payment of duty which is much more than the amount required in terms of Rule 6(3)(b), there is no question of further payment - also, when the appellant had paid duty on their final product they must have paid the same by utilizing the credit so availed by them in respect of common input used for dutiable as also exempted final product in which case there would be no question of further neutralization of cenvat credit. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Applicability of Rule 6(3)(b) in case of exempted goods cleared on payment of duty
- Interpretation of neutralization of cenvat credit
- Assessment of duty payment on final products

Analysis:
The judgment by the Appellate Tribunal CESTAT ALLAHABAD involved a hospital engaged in manufacturing disposable syringes and other parts, where disposable syringes attract excise duty, but parts and accessories are exempted. The appellant, during the relevant period, cleared parts and accessories by paying duty instead of availing the exemption. The Revenue initiated proceedings against them, proposing a demand of &8377; 53,24,694, claiming 10% payment on the value of exempted goods. The Commissioner confirmed the demand and penalty, stating that the payment under Rule 6(3)(b) aims to neutralize cenvat credit on inputs used in exempted goods, regardless of duty payment on the final product.

The Tribunal noted that the appellant had indeed paid duty on parts and accessories, exceeding the confirmed amount. The key issue was whether Rule 6(3)(b) applied when goods were cleared on payment of duty. The Tribunal agreed with the Commissioner that the rule aims to neutralize credit on inputs when no duty is paid on the final product. Since the final product had already paid duty, no further neutralization was necessary. The Tribunal criticized the Adjudicating Authority for not considering all facts and circumstances.

Moreover, the Tribunal referenced a previous order by the Commissioner (Appeals) which stated that when duty paid on final products exceeds the Rule 6(3)(b) amount, no additional payment is required. The Tribunal emphasized that if duty was paid on the final product using credit for common inputs, no further neutralization of credit was needed. Consequently, the Tribunal found no merit in the Revenue's position, setting aside the impugned order and allowing the appeal with relief to the appellant.