2021 (12) TMI 357 - AT - Central Excise

CENVAT Credit - manufacture of dutiable goods as well as exempt goods - generation of electricity, which in turn is used in the manufacture of finished goods - Rule 6 of CENVAT Credit Rules, 2004 was amended by Notification No. 27/2005-C.E.(N.T.) dated 16.05.2005 - HELD THAT - The appellants manufacture the Soda Ash which is a dutiable product and salt of various kinds which is an exempted product. The appellants are using certain common inputs in their electricity generation process on which they are availing Cenvat Credit. The appellant have used these common inputs for generation of steam which in turn is used partly for generation of electricity and partly in the process of manufacture of Soda Ash/salt plant in terms of Rule 6 of Cenvat Credit Rules, 2004. Since, the appellant were availing Cenvat Credit of common inputs which were used for both dutiable and exempted final product. The appellants were required to follow the prescription of Rule 6 of the Cenvat Credit Rules. The Commissioner has denied the benefit of option (II) given under Rule 6 (3) as the appellant has failed to follow the procedure prescribed under Rule 6 (3A). It is found that the appellant has been reversing the credit on a monthly basis and ideally they should have followed the procedure prescribed under Rule 6 (3A) for first ascertaining provisionally the proportional amount of credit required to be reversed and thereafter finalizing it in terms of Rule 6 (3A). However, the substantial benefit available in the law cannot be denied simply because the appellant had failed to follow the procedure prescribed in the law. The appellant have claimed that the reversal made by them is the exact amount that they were required to reverse. The other issue involved in the instant case is if the appellants are required to reverse the credit taken on HDPE bags and Soda Ash captively consumed for manufacture of salt - HELD THAT - The appellants have categorically stated that they have paid duty on the captively consumed soda ash. They have also reversed entire credit taken on HDPE Bags. These facts needs verification. The matter is remanded to the original authority. The appellant should submit the final data to substantiate the amount of credit required to be reversed in terms of Rule 6 (3A) in terms of the earlier order of tribunal - appeal allowed by way of remand.

Summary

Issues Involved:
1. Denial and recovery of CENVAT credit on inputs used as fuel for the generation of electricity supplied for the manufacture of exempted goods.
2. Applicability of Rule 6 of CENVAT Credit Rules, 2004, and the requirement to maintain separate accounts for common inputs.
3. Reversal of CENVAT credit on inputs used for the manufacture of exempted goods.
4. Invocation of extended periods of limitation for raising demands.
5. Adequacy of duty payment on steam and the requirement to reverse 8%/10% of the value of exempted goods.

Issue-wise Detailed Analysis:

1. Denial and Recovery of CENVAT Credit on Inputs Used as Fuel:
The appellant used pet coke and furnace oil as fuel for generating electricity in their captive power plant (CPP). This electricity was used in the manufacture of both dutiable (soda ash) and exempted (salt) goods. Prior to 16.05.2005, the appellant availed CENVAT credit on the entire amount of furnace oil and pet coke without reversing any credit. A Show Cause Notice dated 09.03.2006 proposed to deny and recover proportionate CENVAT credit for the period 01.10.2001 to 15.05.2005. The demand was set aside by the Commissioner (Appeals) on the ground that there was an exception for inputs used as fuel under Rule 6(2) of the CENVAT Credit Rules, 2004.

2. Applicability of Rule 6 of CENVAT Credit Rules, 2004:
Rule 6 was amended on 16.05.2005, removing the exception for inputs used as fuel. From this date, the appellant started availing proportionate CENVAT credit only for the electricity used in the manufacture of dutiable goods and reversed credit for the electricity used in the manufacture of exempted goods. The appellant followed this practice until the introduction of the GST regime.

3. Reversal of CENVAT Credit on Inputs Used for Manufacture of Exempted Goods:
The appellant reversed proportionate CENVAT credit on inputs used for generating electricity supplied to the salt plant and residential colony. Another Show Cause Notice dated 19.05.2006 proposed a total demand of ?25,34,77,735/- for various periods, including 10% of the value of exempted goods under Rule 6(3)(i) and denial of CENVAT credit on HDPE bags used for packing soda ash. The Tribunal set aside these demands, holding that the reversal of 10% of the value of steam was adequate.

4. Invocation of Extended Periods of Limitation:
In appeals E/12446/2019 and E/10669/2020, the appellant argued that the demands were raised beyond the normal period of limitation. The demands were based on the requirement to reverse 8%/10% of the value of steam used in the manufacture of exempted products. The Tribunal had previously held that duty payment on steam was adequate.

5. Adequacy of Duty Payment on Steam:
The Tribunal had held that the duty payment on steam was adequate in terms of Rule 6 and set aside the demand for reversing 8%/10% of the value of salt. Both the appellant and Revenue have challenged this order before the Hon’ble High Court of Gujarat, and the matter is pending.

Judgment:
The Tribunal found that the appellant had been reversing CENVAT credit on a monthly basis but had not followed the exact procedure prescribed under Rule 6(3A). However, the substantial benefit available in the law cannot be denied due to procedural lapses. The Tribunal remanded the matter to the original authority for verification of the credit reversal and duty payment on captively consumed soda ash.

For appeals E/12446/2019 and E/10669/2020, the Tribunal set aside the impugned orders and remanded the matters back to the original adjudicating authority to decide afresh after the Hon’ble High Court decides the fundamental issue regarding the amount to be reversed.

The appeals were allowed by way of remand to the Adjudicating Authority.