2019 (2) TMI 1291 - AT - Central Excise

CENVAT Credit - input and input services which has been used for manufacture of dutiable as well as the exempted goods - non-maintenance of separate records - Rule 6(3) of Central Excise Rules, 2004 - demand of 10% of the valuable exempted goods - time limitation - Held that - There is no dispute that the appellant is not entitled to avail Cenvat credit on common input/input services to be used in manufacture of exempted as well as dutiable goods in terms of Rule 6(3) of Central Excise Rule, 2004. Time Limitation - Held that - Initially, in 2007 the appellant was manufacturing only dutiable goods but in August 2007 the appellant started manufacturing exempted goods also apart from dutiable goods and was availing Cenvat credit on common inputs and input services for manufacturing both dutiable exempted final goods and not reversing the proportionate Cenvat credit attributable to exempted goods or paying 10% of the valuable exempted goods. These facts were also available during the course of audit conducted during the period 16th/17th April 2008 and no objection was raised by the Revenue - the show cause notice is rightly issued to the appellant by invoking the extended period of limitation. The appellant is required either to reverse the proportionate Cenvat credit attributable to exempted final product or to pay 10% of the value of exempted final product for the period 17.05.2009 till date 31.03.2011 along with interest - penalty not invocable - appeal allowed in part.

Summary

Issues:

1. Whether the demand of 10% of valuable exempted goods is justified.
2. Whether the show cause notice is barred by limitation.

Analysis:

Issue 1: Demand of 10% of valuable exempted goods
The appellant availed Cenvat credit on common inputs for manufacturing both dutiable and exempted goods without reversing the proportionate credit or paying 10% of the value of exempted goods. The audit in 2008 raised no objection, but in 2010, it was noted that the appellant did not comply with the requirement. The show cause notice was issued for demand of 10% of exempted goods. The Tribunal held that the appellant was not entitled to avail Cenvat credit for exempted goods under Rule 6(3) of Central Excise Rules, 2004. The appellant failed to pay the required amount, justifying the demand.

Issue 2: Show Cause Notice Limitation
The appellant argued that the show cause notice was time-barred as the department was aware of the credit availed on common inputs. However, the Revenue objected during the 2010 audit, stating the appellant must pay 10% of the exempted goods value. The Tribunal found that the notice was rightly issued within the extended period of limitation. The appellant's reliance on previous cases was dismissed as those cases differed in payment compliance. The Tribunal ordered the appellant to reverse the credit or pay 10% of exempted goods value from 17.05.2009 to 31.03.2011 with interest, dropping the penalty due to circumstances.

In conclusion, the appeal was disposed of with the appellant directed to comply with the payment requirements for the exempted goods without imposing a penalty.