2021 (11) TMI 299 - AT - Central Excise

Reversal of CENVAT Credit - appellant manufactures both dutiable goods and exempted goods. - Common inputs - The appellant has not availed Cenvat credit on inputs used exclusively in manufacture of exempted goods. - Not only is the furnace oil a common input procured jointly for all the products, it is also used to generate steam which is further used for manufacture of dutiable as well as exempted products. The steam is used both for extraction of herbs and for production of sugar syrup. The sugar syrup is in turn used for manufacture of goods dutiable and exempted products. HELD THAT - The retrospective amendment made by Finance Act, 2010 allowed the assessee to reverse proportionate amount of Cenvat credit. They had to file a declaration, which the appellant did. The appellant reversed the amount with interest. The appellant has, according to the learned counsel, debited the amount of Cenvat credit accordingly. The quantity of dutiable and exempted products manufactured by the appellant are a matter of record. The quantity of furnace oil attributable to unit quantity of each of those products is a technical matter. The appellant has used the technical report to debit and there is nothing in the Commissioner s order to show that the calculations were wrong and more or less of furnace oil was attributable to the production of exempted goods and if so, by how much. Whether the appellant can be compelled to choose one of the options under Rule 6 of Cenvat Credit Rules, 2004. - HELD THAT - It is not permissible for the Department to foist an option under Rule 6 upon the assessee as has been done in the impugned orders. For this reason also the impugned orders cannot be sustained and need to be set aside. We also note that there is no provision in the Central Excise Act or Cenvat Credit Rules, 2004 whereby an amount under Rule 6(3) can be recovered from the assessee. Section 11A of the Act provides for recovery of duty. Rule 14 of the CENVAT credit Rules provided for recovery of irregularly availed CENVAT credit. Any demand under Rule 14 of CENVAT Credit Rules, 2004 for recovery of an amount under Rule 6(3) therefore, is without the authority of law and hence needs to be set aside regardless of the merits of the case. Since the confirmation of the demands cannot be sustained under Rule 6(3), the demand for interest and imposition of penalty also need to be set aside.

Issues Involved:
1. Non-maintenance of separate accounts for inputs used in the manufacture of dutiable and exempted goods.
2. Requirement to pay an amount equal to a percentage of the value of exempted goods under Rule 6(3) of the Cenvat Credit Rules, 2004.
3. Reversal of Cenvat credit and its sufficiency.
4. Application of retrospective amendment under the Finance Act, 2010.
5. Authority of the Commissioner to reject the application for reversal of Cenvat credit.
6. Imposition of interest and penalties.

Detailed Analysis:

Issue 1: Non-maintenance of Separate Accounts
The appellant manufactures both dutiable and exempted goods and uses furnace oil as a common input. The Department argued that the appellant did not maintain separate accounts for inputs used in the manufacture of dutiable and exempted goods as required by Rule 6(2) of the Cenvat Credit Rules, 2004. The Tribunal found that Rule 6(2) does not necessitate the physical separation of inputs but only requires separate accounting entries. The appellant maintained separate accounts by calculating the proportion of furnace oil used for dutiable goods and reversing the corresponding credit.

Issue 2: Requirement to Pay an Amount under Rule 6(3)
The Department demanded that the appellant pay an amount equal to 10% of the value of exempted goods under Rule 6(3) of the Cenvat Credit Rules, 2004, for not maintaining separate accounts. The Tribunal held that Rule 6(3) provides options to the assessee and does not empower the Department to enforce a specific option. The High Court of Telangana and Andhra Pradesh in Tiara Advertising clarified that the Department cannot force an option upon the assessee.

Issue 3: Reversal of Cenvat Credit and Its Sufficiency
The appellant claimed to have reversed the proportionate amount of Cenvat credit attributable to inputs used in the manufacture of exempted goods. The Commissioner rejected this claim, citing deficiencies in the calculation method as per an expert report from IIT Roorkee. The Tribunal noted that the Commissioner did not specify the correct amount to be reversed and found that the appellant's method of calculating and reversing the credit was valid.

Issue 4: Application of Retrospective Amendment under the Finance Act, 2010
The Finance Act, 2010, provided an option for the appellant to reverse the proportionate amount of Cenvat credit for the period 16.05.2005 to 31.03.2008. The appellant filed a declaration and reversed the credit. The Commissioner rejected the application, stating that the calculations were incorrect. The Tribunal held that the Finance Act only allowed the Commissioner to verify the correctness of the amount and demand any shortfall, not to reject the application.

Issue 5: Authority of the Commissioner to Reject the Application
The Tribunal found that the Commissioner overstepped his authority by rejecting the appellant's application for reversal of Cenvat credit. The Finance Act, 2010, did not confer the power to reject the application but only to verify the correctness and demand any differential amount.

Issue 6: Imposition of Interest and Penalties
Since the Tribunal found that the demands under Rule 6(3) could not be sustained, the associated demands for interest and penalties were also set aside. The Tribunal emphasized that recovery of an amount under Rule 6(3) is not provided for under Section 11A of the Central Excise Act or Rule 14 of the Cenvat Credit Rules, 2004.

Conclusion:
The Tribunal set aside the impugned orders, holding that the appellant's method of accounting for and reversing Cenvat credit was valid and that the Department could not enforce a specific option under Rule 6(3). The demands for payment under Rule 6(3), along with interest and penalties, were quashed. The appeals were allowed with consequential relief.

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