2020 (1) TMI 530 - AT - Central Excise

CENVAT Credit - manufacture of dutiable final product and electricity wheeled out to the State grid - non-maintenance of separate records - assessee claims to have maintained separate records in respect of the inputs consumed in its Power Division and Carbon Black Division, having no common inputs - whether the assessee is required to pay 5%/6% of the sale value of electricity wheeled out to the state grid, under Rule 6(3)(i) of the CCR? HELD THAT - Lex non cogit ad impossibilia is a well settled legal principle and we see merit in the contentions of the assessee that separate records in respect of common inputs could be maintained only when two final products are manufactured. Within the power division it was not possible to segregate the inputs at the stage of receipt itself, based on the ultimate use of the power post its production/generation. It is undisputed that the assessee had been making reversal of the proportionate cenvat credit attributable to inputs consumed in the power division to the extent power was sold to the State grid, at the end of each month and the same is also evident from the annexure to the notices - the reversal of such proportionate cenvat credit in respect of inputs used within the power division at the end of each month is sufficient compliance with the provisions of Rule 6(2) of the CCR in letter and spirit. Reversal of proportionate cenvat credit in respect of the common input used in the manufacture of exempted goods is an option duly permitted under Rule 6(3)(ii) of the CCR itself. Non-compliance with the procedure prescribed under Rule 6(3A) of the CCR does not result in the manufacturer losing his substantive right to avail the option of reversing proportionate credit, as such procedural lapse is condonable and denial of substantive right on such procedural failure is unjustified. Appeal allowed.

Summary

Issues:
1. Differential duty demand under Rule 6(3)(i) of the Cenvat Credit Rules.
2. Alleged failure to maintain separate accounts for inputs used in the manufacture of final products.
3. Interpretation of CBFS as a common input for different divisions.
4. Compliance with procedural requirements of Rule 6(3A) of the CCR.
5. Applicability of Rule 6(3)(i) to non-excisable goods.
6. Imposition of penalty without mala fide intentions.

Analysis:

1. The judgment involves excise appeals filed by the assessee and the department against differential duty demands confirmed under Rule 6(3)(i) of the Cenvat Credit Rules for different periods. The appeals were taken up together for disposal due to a common issue covering separate periods.

2. The facts of the case revolve around the manufacturing and sale of Carbon Black by the assessee, who also operates a Captive Power Plant within the same premises. Separate accounting for inputs used in different divisions was maintained through SAP Software. The dispute arose regarding the alleged failure to maintain separate accounts for inputs, leading to duty demands.

3. The issue of CBFS being considered a common input for both the Carbon Black and Power Divisions was central to the case. The adjudicating authorities viewed CBFS as a common input due to lean gas byproduct used in electricity generation. The assessee argued against this interpretation, citing precedents from the Ahmedabad Bench of the CESTAT.

4. Compliance with procedural requirements under Rule 6(3A) of the CCR was challenged, with the authorities claiming that the proportionate reversals made by the assessee were not in line with the procedural norms. The appellate commissioner reversed one of the orders based on this aspect, leading to further debate.

5. The applicability of Rule 6(3)(i) to non-excisable goods, specifically electricity, was contested by the assessee. They argued that the rule was not applicable to non-excisable goods before a prospective notification in 2015. Precedents and legal provisions were cited to support this argument.

6. Lastly, the imposition of penalties without mala fide intentions was a significant contention. The assessee and its employee challenged the penalties imposed, emphasizing the absence of any malicious intent. The departmental representative supported the penalties, aligning with the findings of the adjudicating authority.

In the final judgment, the Tribunal ruled in favor of the assessee, setting aside the duty demands and penalties while upholding the appeal against the department's order. The decision was based on the interpretation of common inputs, procedural compliance, and the applicability of rules to non-excisable goods, among other legal considerations.