2023 (10) TMI 349 - AT - Central Excise

Recovery of Central Excise duty alongwith interest and penalty - attribution of the impugned taxable services in production of rectified spirit and of kraft paper along with manufacture of sugar , molasses and denatured spirit that are cleared on payment of duty - availability of option other than the one resorted to by the adjudicating authority - HELD THAT - The coverage of partial, and conditional exemption, as a bar to retention of credit, in terms of rule 6 of CENVAT Credit Rules, 2004 is no longer res integra. The Tribunal in M/S. SHARDLOW INDIA LTD. VERSUS CCE, CHENNAI II 2017 (8) TMI 1162 - CESTAT CHENNAI has held that In similar case, where the goods were cleared to M/s. Space Centre and M/s. Baba Atomic Research Centre in the case of COMMISSIONER OF CENTRAL EXCISE, THIRUNELVELI VERSUS DCW LTD. 2008 (10) TMI 380 - MADRAS HIGH COURT , the jurisdictional High Court has considered that the said goods cannot fall under the category of exempted goods as provided in Rule 57CC(1) of the erstwhile Central Excise Act, 1944. In M/S. MERCEDES BENZ INDIA (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015 (8) TMI 24 - CESTAT MUMBAI , the Tribunal held that we do not understand that when the appellant have categorically by way of their intimation opted for option provided under sub-rule (3)(ii), how Revenue can insist that option (3)(i) under Rule 6 should be followed by the assessee. Thus, it is not in doubt that any of the options may be chosen by the assessee - the recovery under rule 14 of CENVAT Credit Rules, 2004 restricted to such amount as is computed by the appellant herein. There is no reason to sustain the penalty imposed under section 11AC of Central Excise Act, 1944 as there is no allegation of evasion of duty otherwise payable on account of non-availability of sufficient credit on clearance of dutiable goods - the impugned order is modified to limit recovery by any method then available under rule 6 of CENVAT Credit Rules, 2004 to be exercised by the appellant herein within 30 days of receipt of this order and to the extent of tax attributable to input service used in manufacture of rectified spirit during the relevant period. Appeal disposed off.

Summary

Issues Involved:
The judgment involves issues related to the recovery of Central Excise duty, interest, and penalty under sections 11A, 11AB, and 11AC of the Central Excise Act, 1944. The main issue revolves around the reversal of credit under rule 6 of the CENVAT Credit Rules, 2004 for the period between April 2009 and March 2011 concerning the production of various goods like 'rectified spirit,' 'kraft paper,' 'sugar,' 'molasses,' and 'denatured spirit.'

Recovery of Central Excise Duty, Interest, and Penalty:
The appeal challenges the recovery of Rs. 57,50,058 under section 11A of the Central Excise Act, 1944, along with applicable interest under section 11AB and a penalty of a similar amount under section 11AC. The dispute arises from the attribution of 'taxable services' in the production of 'rectified spirit' and 'kraft paper,' as well as the manufacture of other goods cleared on payment of duty. The appellant contests the reversal of credit under rule 6 of the CENVAT Credit Rules, 2004, citing various legal precedents to support their argument.

Interpretation of Rule 6 of CENVAT Credit Rules, 2004:
The appellant argues that rule 6 is intended to neutralize credit taken on 'inputs' or 'input services' used in the manufacture of goods that are fully exempted from duty, not partially exempt like 'kraft paper.' Legal authorities are cited to support this interpretation, emphasizing the discretion of the assessee in choosing the appropriate option under the rule.

Application of Rule 6 and Compliance Requirements:
The adjudicating authority insisted on a specific form of neutralization under rule 6, despite settled audit objections regarding the utilization of 'molasses.' The appellant contends that the impugned order disproportionately applied rule 6, contrary to established legal principles. The appellant also argues that the reversal of proportionate credit should suffice for compliance with the rule, as per previous tribunal decisions.

Maintaining Separate Books of Accounts and Extended Period:
The appellant's failure to maintain separate books of accounts for 'dutiable goods' and 'exempt goods' is highlighted, limiting their ability to exercise options under rule 6. The respondent relies on legal precedents to support invoking the extended period based on specific facts of the dispute, emphasizing the importance of maintaining accurate records for compliance.

Limitation as a Bar to Recovery and Compliance with Rule 6:
The absence of reporting production of 'rectified spirit' and failure to reverse proportionate credit on common services are cited as reasons to dismiss the limitation as a bar to recovery. The judgment emphasizes the importance of complying with rule 6 by reversing proportionate credit, as demonstrated in previous legal cases.

Modification of Impugned Order and Penalty Imposition:
The tribunal modifies the impugned order to limit recovery under rule 6 to the tax attributable to 'input service' used in the manufacture of 'rectified spirit' during the relevant period. The penalty imposed under section 11AC is deemed unjustified, as there is no allegation of duty evasion, leading to the order's modification within a specified timeline.