2022 (12) TMI 348 - AT - Central Excise

CENVAT Credit - common inputs and common input services which were used in the manufacture of the dutiable and exempted products - non-maintenance of separate records - pharmaceutical industry. Whether furnace oil used in the factory which gets consumed in the manufacturing process whether it is the manufacture of dutiable goods or exempted ones - HELD THAT - The total amount of dispute of CENVAT credit which has been taken on this furnace oil and common input services is only Rs. 2,80,049/-. Evidently, the appellant would be entitled to part of the credit to the extent it was used in the manufacture of dutiable goods. Nevertheless, the appellant reversed the entire amount of CENVAT credit on these common inputs and input services. This fact was recorded in the reply to show cause notice itself. Therefore, the entire basis of the show cause notice that the appellant had taken CENVAT credit on common inputs and input services no longer exists. In the case of CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR 1995 (12) TMI 72 - SUPREME COURT , the Supreme Court has held that reversal of MODVAT credit after having taken it is as good as not taking the credit at all. In this case, similarly the credit taken by the appellant has been reversed and nothing survives. Therefore, the original adjudicating authority and the Commissioner (Appeals) were not correct in demanding an amount equal of 10% of value of the exempted goods under Rule 6 (3) of CCR. The impugned order cannot be sustained and needs to be set aside - Appeal allowed.

Summary

Issues:
1. Appeal against Order-in-Original upholding demand under Rule 6(3) of CENVAT Credit Rules, 2004.
2. Alleged violation of natural justice in passing the impugned order.
3. Contention on reversal of disputed CENVAT credit and penalty imposition.
4. Legal arguments citing relevant case laws.
5. Challenge on limitation grounds for the show cause notice issued.
6. Dispute on the timing of credit reversal and its impact on the case.

Analysis:
1. The appellant challenged the Order-in-Original upholding the demand under Rule 6(3) of CENVAT Credit Rules, 2004. The dispute arose from the appellant's availing of CENVAT credit on common inputs without maintaining separate accounts for dutiable and exempted products. The Revenue claimed the appellant owed an amount equal to 10% of the value of exempted goods due to non-compliance with Rule 6(2) of CCR.

2. The appellant contended that the impugned order was non-speaking, violating natural justice principles, and illegal. The entire disputed CENVAT credit was reversed by the appellant, rendering the demand under Rule 6(3) of CCR and the penalty imposed unjustified. Legal arguments were presented, citing case laws to support the appellant's position.

3. The appellant also raised concerns regarding the limitation period, arguing that the show cause notice was issued beyond the normal limitation period. It was emphasized that regular filing of returns indicated no suppression of facts or fraudulent intent on the appellant's part.

4. The Revenue acknowledged the reversal of the disputed CENVAT credit but supported the impugned order. A distinction was drawn between the present case and the Chandrapur Magnet case concerning the timing of credit reversal in relation to goods clearance.

5. The Tribunal analyzed the complexities of maintaining separate records in the pharmaceutical industry due to common inputs used in manufacturing both exempted and dutiable products. It was noted that the appellant had reversed the entire disputed CENVAT credit, as recorded in the reply to the show cause notice, eliminating the basis for the demand under Rule 6(3) of CCR.

6. Relying on the Supreme Court precedent in Chandrapur Magnet, the Tribunal concluded that the reversal of the credit by the appellant nullified the demand made by the Revenue. The impugned order was set aside, and the appeal was allowed in favor of the appellant, with consequential relief granted, if applicable.