2020 (4) TMI 196 - AT - Central Excise

Reversal of CENVAT Credit - actual consumption of inputs used for manufacture of dutiable goods or used for manufacture of exempted goods which are exported - non-maintenance of separate records - requirement to reverse 6% of the value of exempted goods - HELD THAT - In this present case, the appellant is not taking any CENVAT credit at all on the invoices at the time of receipt of inputs. There is a specific input output co-relation for every batch of every drug known as consumption coefficient according to which the quantity of inputs which have gone into the manufacture of that particular batch of the particular drug can be ascertained. The appellant has been availing CENVAT credit only on the proportionate amount of inputs which are gone into manufacture of either dutiable goods or in the manufacture of exempted goods which are exported. Therefore, there is no availment of common input credit. The credit is availed only on such quantity of inputs as gone into the manufacture of dutiable products or exempted products which are exported. Whether in a case where the exempted goods are exported under bond, whether the assessee is required to reverse an amount under Rule 6(3) or whether it gets covered by Rule 6(6) and hence no reversal is required? - HELD THAT - In respect of the same appellant, this Bench in ASTRIX LABORATORIES LTD., VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, HYDERABAD-I AND VICE VERSA 2018 (3) TMI 837 - CESTAT HYDERABAD and ASTRIX LABORATORIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS SERVICE TAX, HYDERABAD-I, 2019 (5) TMI 1344 - CESTAT HYDERABAD has decided in favour of the appellant on both these issues, holding that such case where goods are exported, direction by revenue to the petitioner to pay 10% of sale price of exempted goods u/r 6(3)(b) is not justified. If the exempted products are exported outside India the provisions of Rule 6(6)(v) of CCR are applicable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to order-in-original regarding CENVAT credit availed by a pharmaceutical company, requirement to reverse CENVAT credit for exempted goods, applicability of Rule 6(3) and Rule 6(6) under CENVAT Credit Rules.

Analysis:

1. The appellant, a pharmaceutical manufacturer, challenged an order-in-original issued by the Commissioner of Customs and Central Excise regarding CENVAT credit availed on inputs used for dutiable and exempted products. The appellant claimed to have not availed any common inputs credit and only took credit based on actual consumption for dutiable goods or exported exempted goods.

2. The appellant explained their manufacturing process, emphasizing the specific input-output correlation for each batch of drugs manufactured, known as the consumption coefficient. They asserted that credit was availed only on the quantity of inputs used for dutiable or exported exempted goods, calculated as per the consumption coefficient.

3. The show-cause notice alleged that the appellant failed to maintain separate accounts for dutiable and exempted products, necessitating a reversal of 6% of the value of exempted goods. The demand for reversal of CENVAT credit, along with interest and penalties, was confirmed in the impugned order.

4. The appellant argued that previous decisions by the Tribunal and the High Court supported their position, stating that no reversal of CENVAT credit was required for exempted goods exported under bond. They relied on the interpretation of Rule 6(6) of the CENVAT Credit Rules to support their claim.

5. After considering the arguments and perusing the records, the Tribunal noted the unique nature of the pharmaceutical industry where inputs could be used for various products. The Tribunal found that the appellant had not availed common input credit and had only taken credit based on the actual usage for dutiable or exported exempted goods.

6. The Tribunal referred to the decision of the Hon'ble High Court of Bombay in a similar context, highlighting the applicability of Rule 6(6) of the CENVAT Credit Rules to exempted goods exported under specific conditions. The Tribunal concluded that the appellant was not required to reverse CENVAT credit as they had followed the prescribed procedures and had not availed common input credit.

7. Based on the above analysis, the Tribunal set aside the impugned order, allowing the appeal with consequential relief. The decision was pronounced in open court at the conclusion of the hearing.