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TMI Blog2021 (11) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of exempted goods. However, there was one common input, viz., furnace oil, which was used to generate steam which was captively consumed by the appellant to manufacture sugar syrup and extracts of herbs and flowers both of which were used in manufacture of the final products. The quantity of furnace oil in stock at the beginning of every month, the quantity during the month and the closing balance were maintained in the computer system which showed how much furnace oil was used during each month. Since furnace oil is used to generate steam which was further used to manufacture final products, it was impractical for the appellant to maintain separate accounts of furnace oil or generate steam separately for manufacture of dutiable goods and separately for manufacture of exempted goods. Based on the daily production of dutiable goods and exempted goods and actual consumption of furnace oil computed as per running time and usage of furnace oil every day, the appellant took credit of furnace oil only on that proportion of the furnace oil which went into manufacture of dutiable goods. 6. The appellant s records were audited by the department and the audit party observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable . 9. Rule 6 (3) states that the manufacturer or provider of output service opting not to maintain separate accounts shall follow any of the following conditions applicable to him. It has three clauses: (a), (b) (c), of which the one in dispute is (b) which reads as follows :- 6 (3) (b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to ten per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory ; 10. This Rule 6 (3) was amended w.e.f. 01.03.2008 and a new Rule 6 (3A) was also introduced. After amendment, Rule 6 (3) Rule 6 (3A) which read as follows :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A; (ii) The amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional) = (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A; (iii) The amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount; (g) The manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) respectively, the following particulars, namely :- (1) details of CENVAT credit attributable to exempted goods and exempted services, monthwise, for the whole financial year, determined provisionally as per condition (b) ; (2) CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c), (3) Amount short paid determined as per condition (d), alongwith the date of payment of the amount short-paid, (4) Interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and (5) Credit taken on account of excess payment, if any, determined as per condition (f) ; (h) Where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition (b), d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods . 13. Learned Counsel submits that Rule 6(2) does not require separate stocking of the common inputs into those to be used for manufacture of dutiable goods and those to be used to be manufacture of exempted goods. It only requires the appellant to maintain separate accounts for receipt, consumption and inventory of inputs and input services used in manufacture of dutiable final products and manufacture of exempted goods. Since they receive the furnace oil and also use it for generation of steam, which in turn, they use to manufacture syrup and to extracts f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 10th September, 2004, rule 6 shall stand amended and shall be deemed to have been amended retrospectively, in the manner specified in column (3) of the Eighth Schedule, on and from and up to the corresponding date specified in column (4) of that Schedule against the rule specified in column (2) of that Schedule. (2) Where a person opts to pay the amount in accordance with the provisions as amended by sub-section (1), he shall pay the amount along with interest specified thereunder and make an application to the Commissioner of Central Excise along with documentary evidence and a certificate from a Chartered Accountant or a Cost Accountant, certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of exempted goods, within a period of six months from the date on which the Finance Bill, 2010 receives the assent of the President. (3) The Commissioner of Central Excise shall, on receipt of an application under sub-section (2), verify the correctness of the amount paid within a period of two months from the date of receipt of the application and in case the amount so paid is found to be less than the amount payable, he shall call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumption of Furnace oil except for inclusion of efficiency factor (which as mentioned by them is 75% and not 100%). This may be taken into consideration for exact calculation. 2. As far as division of consumption of furnace oil of dutiable and non dutiable items is concern, it will depend on the monthly production of those items. In conclusion, it may be stated that 75% boiler efficiency should be considered in calculation for determining consumption of furnace oil. 6.17 From the above report of IIT Roorkee, I find that the method of calculation of use of furnace oil in dutiable as well as exempted goods has not been found in order by the experts. The factor namely actual boiler efficiency has not been taken into account by the party. As such I feel that the formula of calculation of use of FO in both type of products cannot be relied upon and is not acceptable. As such the request of the party for regularization of credit during the period upto 31.03.2008 cannot be acceded to and they are liable to pay an amount @ 10% of the value of exempted goods in terms of rule 6 (3) (b) of the Cenvat Credit Rules, 2004 as they existed at the material time. From the calculation sheet as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the same amount of steam. Therefore, more Cenvat credit should have been available to the appellant and not less. However, in the present case, the inter-se consumption between the dutiable and exempted products of the furnace oil used for generation of steam will not change. What is in dispute is whether the appellant has correctly reversed the amount of Cenvat credit attributable to the furnace oil used for steam generated and used for manufacture of exempted products. The experts from IIT, Roorkee have left this inter-se consumption of furnace oil between dutiable and exempted products to be decided as per the monthly production of those items. The appellant has exactly used this very formula for reversing the amount of Cenvat credit. It would have been a different matter if the experts had said that more steam was used for manufacture of exempted products than what was debited by the appellant. It is for this very reason, that no calculation error was pointed out in the first impugned order of the learned Commissioner. He simply rejected the calculation without indicating what, according to him, was the correct amount of Cenvat credit to be debited and how much was the short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar issue. I, therefore, of the considered view that the party is not eligible to avail CENVAT Credit on FO used as fuel on proportionate basis which was used in manufacture of dutiable and exempted final products. Therefore, they were required to pay an amount @ 5% of the value of exempted goods cleared during the period from 01.10.2010 to 31.03.2011. They are, therefore, liable to pay total amount of ₹ 3,51,96,966/- for the said period in terms of Rule 6 (3) (i) of the CCR, 2004 along with interest in terms of Section 11AB of the Act . 21. Learned Counsel submitted that without application of mind, the Commissioner simply followed his own order for the earlier period and brushed aside the reversal of Cenvat credit by holding that the same was not done correctly. In view of the above, the entire demand and interest confirmed by the two impugned orders and the penalties imposed under them need to be set aside. 22. Learned Departmental Representative vehemently supported the impugned orders. 23. We have gone through the records of the case and considered the submissions made by both sides. 24. It is undisputed that the appellant manufactures both dutiable goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble from 01.04.2010, has been exercised by the party, but it was based on the formula which was their self created mechanism and has not been approved by the competent authority. (iii) Neither Rule 6 (2) of Cenvat Credit Rules, 2004 has been followed correctly nor Rule 6 (3), intentionally ; (iv) Proper records under Rule 9 (5) of Cenvat Credit Rules, 2004, were not maintained; 26. The first question which arises is whether Rule 6(2) required an assessee to purchase, stock and use the common inputs separately for use in manufacture of dutiable goods and exempted goods. A plain reading of Rule 6(2) does not show that the assessee has this responsibility. Rule 6(2) only requires separate accounts to be maintained for receipt, consumption and inventory of inputs and input services used in manufacture of dutiable final products and exempted products. In many industries, the same stock of the common input is procured in bulk and is used in manufacture of several dutiable and exempted goods as required from time to time. In bulk drug industries and chemical industries, for instance, common solvents such as acetone, benzene, methanol and commonly used chemicals such as hydrochlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and exempted products. Therefore, accounts can only be maintained by corresponding credit and debit entries reversing proportionate amount of Cenvat credit. On this very ground itself, the impugned orders must fail. 29. Secondly, since there were doubts, 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 Finance Act only provided for the Commissioner to verify, within a given time, the declaration and the reversal so made and if the amount debited was insufficient, then to ask the assessee to debit the remainder. The Finance Act, 2010 does not authorize the Commissioner to reject the application filed by an assessee but the Commissioner has assumed this power. 30. Of course, the Commissioner had the power to verify and for such verification, he could await technical expertise. He has rightly taken the help of experts from IIT, Roorkee. The Commissioner s objection to the debit by the assessee was that it was not as per the experts opinion. If so, the Commissioner should have expressed as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is nothing in this Rule which authorizes the Commissioner or any Departmental Officer to choose a particular option for the assessee and force the assessee to follow it. The High Court further clarified that if the assessee does not choose any of the options and still avails Cenvat credit then it would be wrongly availing such Cenvat credit and such wrongly availed Cenvat credit can be recovered under Rule 14 of Cenvat Credit Rules. However, 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. 33. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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