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TMI Blog2022 (5) TMI 1301X X X X Extracts X X X X X X X X Extracts X X X X ..... acts as have been recorded by the Commissioner, admit that indeed these capital goods were utilized within the period of two years from the start of their commercial operations for manufacture and clearance of the finished goods on payment of duty. It is not even the case of revenue that throughout these capital goods were exclusively used for manufacture and clearance of finished goods exempt from payment of duty. As there is no denial of the fact that appellants have utilized theses capital goods for manufacture and clearance of the finished goods on payment of duty, in the manner as prescribed by the amended rule 6 (4) the CENVAT Credit could not have been denied. In view of this we do not intend to dwell on the issue of classification/ misclassification of the finished goods, which have been raised by the impugned order. Extended period of limitation - penalty - HELD THAT:- All the facts in respect of availment of CENVAT Credit on the capital goods, input services and the clearance of the finished goods were in the knowledge of the department throughout. Even if there were some interpretational issues the same cannot be said to be the reason for invoking the extended period. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (thirty) days from the date of communication of this order, the amount of penalty liable to be paid by them shall be 25% (twenty five per cent) of the demand confirmed at Sr. No. (a) above. The benefit of reduced penalty under first proviso to Section 11AC of the Central Excise Act, 1944 shall be available only if the amount of penalty so imposed is also paid within the period of 30(thirty) days from the date of communication of this order. (f) I do not impose any penalty on Shri Gaganjyot Singh, Vice President, Finance (earlier General Manager) of the assessee under Rule 15 (1) of Cenvat Credit Rules, 2004." 2.1 Appellant is inter alia, engaged in the manufacture of Gypsum Plaster(TI 25059000), Gypsum Plaster Board (TI 68079090) and Jointing Compound (TI 68079090). 2.2 During the period February 2005 to May 2006, they received various capital goods in the factory and availed various input services viz., consultancy service, manpower supply service, security services in connection with erection and installation of capital goods. These capital goods and input services in dispute were exclusively used in the manufacture of Gypsum Plaster Board and Jointing Compound. In respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable in cases where capital goods are capable of being used/ intended to be used in manufacturing dutiable goods during their economic lifetime, as have been held in the following cases * Rochi Ram & Sons [2003 (155) ELT 96 (T)} * Lakshmi Balaji Bottling Pvt. Ltd. [2018 (9) TMI 20 (T)] * Brindavan Beverages Pvt. Ltd. [2014 (310) ELT 398 (T)] * Arvind Mills Ltd. [2005 (182) ELT 362 (T)] * Bhaskar Industries [2003 (54) RLT 301 (T)] * Supreme Industries Ltd. [2002 (149) ELT 659 (T) ] * Gujarat Propack [2009 (234) ELT 409 (Guj.)] * S.T. Cottex Exports (P) Ltd. [ 2010 (261) ELT 807 (T)]Affirmed by Hon'ble High Court at [2011 (268) ELT 318 (P&H))] * CCE Vs. S.T. Cottex Exports Pvt. Ltd. - 2018 (2) TMI 1313 (T). * Rule 6(4) of Cenvat Credit Rules vide Notification No. 13/2016-CE(NT) dated 1.3.2016 to provide that credit in respect of the Capital Goods will be denied only if the said capital goods have been used for two years from the start of commercial production for manufacture/ production of exempted goods. * Amendment carried out in Rule 6(4) of Cenvat Credit Rules vide Notification No. 13/2016-CE(NT) dated 1.3.2016 has been held to be retrospective in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imitation can be invoked only when suppression of facts with intent to evade duty is established without doubt. Hence, extended period of limitation is not invokable in the present case as have been held in Shree Ramanuj Dyeing & Printing Mills [2019 (5) TMI 506 - Cestat Ahmedabad]. * The appeal filed be allowed 3.3 Arguing for the revenue learned authorized representative reiterates the findings recorded in the impugned order, and prays for the dismissal of appeal. 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments. 4.2 Commissioner has in the impugned order for disallowing the CENVAT credit taken in respect of the Capital Goods and input services observed as follows: "(47) Findings: I have carefully gone through the entire records of the case, written submissions made by the noticees, oral submissions made by them during the hearing, and the relevant provisions of law on the subject matter. There are mainly two issues involved that is, to be decided in the present case, first, whether the Cenvat credit availed by the assessee on the capital goods which were used by them for manufacture of a product which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board' and 'Jointing Compound' plant the capital goods were received inside the plant from Jan 2005 onwards" and "Regarding the 'Plaster plant' the capital goods were received in 2004 & 2005. B. 50% Cenvat credit was taken on the Capital goods by them on 2nd March 2006 (.e. after about one year after receipt of the capital goods) for the first time. Since then they have been taking Cenvat credit on all Capital goods received in relation to the manufacture as 'Gypsum Board' and 'Jointing Compound' plant. No Cenvat credit has been availed on "Gypsum plaster plant". C. The manufacture of the products namely 'Gypsum Plaster' commenced from Sept 2009, "Gypsum Plaster Board' commenced from Jan 2006. Jointing Compound from March 2000. D. Dutiability of each of the product during the period of receipts of impugned Capital goods i.e. Jan 05 to Feb 06 is as under: 1) Gypsum Plaster - Tariff rate Nil. II) Gypsum Board - Exempted under Sr. No 158 of Notification No. 6/ 2002 dated 1- 3-2002.as amended by III) Jointing Compound - claimed as dutiable but not manufactured during the said period. (51) The records indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Rule. (54) Rule 6 of the Cenvat Credit Rules, 2004 pertains to obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services and Rule 6(4) reads as follows: "No CENVAT credit shall be allowed on capital goods which are used exclusively the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year." The rule is a prohibitory provision and clearly prohibits Cenvat credit on those capital goods which are exclusively used in the manufacture of exempted goods. It however clarifies that the term exempted used in it does not cover value or quantity based exemptions. Also since the Rule relates to allowing credit, which in turn means taking credit from the other side, it has to be specifically read with other Rules of the Cenvat Credit Rules, 2004. Rule 4(2a) of the Cenvat Credit Rules, 2004 stipulates that the Cenvat credit in respect of capital goods received in a factory at any point of time in a given fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) ibid discussed above and therefore not eligible to avail the Cenvat credit. Accordingly, they did not take the credit also. However as soon as the product, which was conditionally exempted earlier became dutiable, they have taken credit on 02-03-2006, (57) Similarly, Rule 6(1) of the Cenvat Credit Rules, 2004, which pertains to obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services, reads as follows: "(1) The Cenvat credit shall not be allowed on such quantity of input or input service which is - used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule ( 2 )" "(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then , the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing outpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were exempted from the payment of whole of the duty of excise leviable on them." If the capital goods are exclusively used in the manufacture of exempted products, modvat credit will not be available to the manufacturer. Subsequently, the exempted product becomes dutiable on account of withdrawal of exemption or the manufacturer puts the capital goods to other use would not revive the question of Modvat credit which stands determined at the time the capital goods was received the decision of the single Bench of the Tribunal in Kailash Auto Builders case is not applicable to the facts of the present matter as the Appellants therein "have made their intention clear that they would be using the said capital goods in the manufacture of excisable final products once the factory starts working to its full capacity in view of this, the Respondents are not entitled to Modvat credit. Accordingly, we set aside the impugned Order and allow the Appeal filed by the Revenue" . Further, the Civil Appeal filed by M/s Surya Roshni Ltd against the above CEGAT order No Al 279/2003-NB dated 30-05-2003 was dismissed by the Hon'ble Supreme Court holding that "The appeal is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt goods merely required use of particular raw materials in prescribed proportion and were not anything else than dutiable goods. Second that they always had intention to manufacture dutiable final products and not that they were always going to manufacture exempt goods. Both these arguments are contrary to the condition laid down/upheld by Hon'ble S.C. in the case supra, as capability to manufacture dutiable goods or intention to manufacture it, is not a criteria for availing Cenvat credit. The criteria in the prohibitory rule discussed above and finely elucidated by the Apex Court is that if the capital goods are used in the exempt goods, credit is not available under the Claim that later on the goods manufactured on it became dutiable or the machine was later on employed for manufacture of different but dutiable goods. Thus, there being no variation in the - facts also, the Hon'ble S.C. decision supra covers the case, overrides all the case laws Cited, demean all contra arguments taken at length in this regard, and so the demand in question has to be upheld." 4.3 Undoubtedly the Commissioner have based on strict interpretation of Rule 6 (4) of CENVAT Credit Rules, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant had taken Modvat credit of duty paid on the aforesaid machine on 20-6-1997. However at the time of receipt of machine in 1996 itself the applicant had filed the statutory declaration under Rule 57T stating that the machine would not be exclusively used for manufacture of exempted final products. 3. The Central Excise Department had issued show-cause notice dated 12-12-1997 for disallowing the Modvat credit and recovering the said amount and also to levy the penalty inter alia on the ground that at the time of receipt of the machine, it was exclusively used for manufacture of exempted final product. The applicant had submitted reply to the said notice and the Assistant Commissioner of Central Excise, vide order-in-original dated 30-6-1998, held that the applicant had correctly taken the credit of the duty paid on the said machine. The Department's appeal was dismissed by Commissioner of Central Excise (Appeals), against which an appeal was preferred by the Department before the Tribunal and cross-objection was filed by the applicant. The Tribunal by the order dated 30-5-2003 has allowed the Department's appeal and has held that the applicant is not entitled to Modvat credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose, there were actually two companies in question. One was Samsung Electronics India Information and Telecommunication Ltd. It was engaged in the manufacture of colour monitors and CTV Chassis on job works. This company later amalgamated with Samsung Electronics India Ltd. The former was undertaking job work for the latter. Therefore, the question that arises for consideration in this appeal did not even arise for consideration in the case before the Allahabad Division Bench. 26. Coming to the core issue on hand, as we have pointed out earlier, the expression "financial year" appearing in Rule 4(2)(a) cannot be rendered redundant or nugatory. The capital goods were received admittedly during the financial year 2002-03. The main final product, namely refined edible oil was exempt from payment of duty only up to 28-2-2003 during the financial year 2002-03. The goods became dutiable with effect from 1-3-2003. Additionally, all the three by-products were not exempt from payment of duty during any part of the financial year 2002-03. Rule 4(2)(a) is not worded as follows : "Cenvat credit shall be availed with reference to the date of receipt of the capital goods." The Rule simply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to manufacture both exempted and dutiable goods but had used the plant exclusively for manufacture of exempted goods for the first two years. Thereafter, he used a plant for manufacture of dutiable products for a short period of 19 days and thereafter never used a plant for manufacture of dutiable products. The question to be decided is whether under these circumstances the assessee is entitled to the benefit of capital goods CENVAT credit on the disputed Line 3 of the plant. A plain reading of the Rule 6(4) of CENVAT Credit Rules, 2004 shows that no credit is admissible on capital goods used exclusively in manufacture of exempted goods or in providing exempted services. There is no requirement of the capital goods to be used any specified extent in manufacture of dutiable goods. The Rule, as it is framed, entitles an assessee to claim credit on capital goods even if the machinery is used to manufacture a single unit of dutiable goods. This appears unfair but equity has no place in matters of taxation and we have to follow the law as it is drafted. The next question to be decided is whether the entitlement of capital goods should be decided based on how they are used at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 2006, the machinery was used only for manufacture of fruit pulp based soft drinks (exempted final product), since they started using the machinery since October 2006 for manufacture of aerated waters (dutiable final product), they would be eligible for Cenvat credit. According to the appellant, the judgment of the Tribunal in the case of CCE, Indore v. Surya Roshni Ltd. (supra) is not applicable to this case, as in this case, from the very beginning their intention was to use the machinery for manufacture of dutiable as well as exempted final product and that for this purpose, it is not necessary both dutiable and exempted final products have to be manufactured simultaneously. 7. In terms of the provisions of sub-Rule (4) of Rule 6 of the Cenvat Credit Rules, 2004 Cenvat credit shall not be admissible on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification, where the exemption is granted based on the value or quantity or clearances made in a financial year. From a perusal of this sub-Rule, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for manufacture of dutiable as well as exempted final product, the eligibility of the capital goods for Cenvat credit cannot depend upon the order in which the same are used - whether first for the manufacture of exempted final products or for the manufacture of dutiable final product. We are supported in this view by the judgment of Hon'ble Gujarat High Court in case of CCE, Vadodara II v. Gujarat Propack reported in [2009 (234) ELT 409 (Guj.) = 2008- TIOL-717-HC-AHM-CX wherein the Hon'ble High Court has held that when the capital goods installed in the year 2000 were used for manufacture of exempted goods on trial basis and subsequently were used for manufacture of dutiable goods when regular production was started, the Cenvat credit in respect of capital goods cannot be denied and the Tribunal's judgment in case of M/s. Surya Roshni Ltd. (supra) would not be applicable. In a similar case, in the case of Pepsico India Holdings Limited [2015 (324) ELT 175 (Tri. - Mumbai)] it was held as follows: "5. Having considered the rival contentions, I hold that the expression exclusively used "also includes intention to use" as provided under Rule 6(4) of the Cenvat Credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital goods in question had been used exclusively for the manufacture of fully exempted finished products. Under sub-rule (4) of Rule 6 of Cenvat Credit Rules, 2004, capital goods Cenvat credit is inadmissible only in respect of those capital goods which are exclusively used in the manufacture of exempted goods. But it is not so in this case. In the case of Surya Roshni Ltd. (supra) relied upon by the Commissioner (Appeals), the finished products at the time of receipt of capital goods were fully and unconditionally exempt from duty while it is not so in this case as in this case while Notification No. 30/04-C.E. provides full duty exemption subject to the condition that no input duty credit has been taken, Notification No. 29/04-C.E. issued on the same date provides optional rate of duty of 4% adv. without any condition. Therefore, the ratio of Tribunal's judgment in the case of Surya Roshni Ltd. (supra) is not applicable to the facts of this case. In view of the above discussion, impugned order is not sustainable and the same is set aside. Appeal is allowed." 4.6 Rule 6(4) was subsequently amended vide Notification No. 13/2016-CE (NT) dated 1.3.2016 to read as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at even if at the time of the receipt of the capital goods, the finished goods manufactured and cleared by the appellant were exempt from payment of duty or attracted duty at "nil" rate, but subsequently the capital goods were utilized for manufacture and clearance of the goods on payment of duty, then the CENVAT credit in respect of such capital goods could not be denied subject to the restrictions as per the Notification No. 13/2016-CE (NT) dated 1.3.2016. In the terms of amendment made the capital goods should have been utilized for manufacture and clearance of goods on payment of duty within two years of the commercial operation of the capital goods. The facts as have been recorded by the Commissioner, admit that indeed these capital goods were utilized within the period of two years from the start of their commercial operations for manufacture and clearance of the finished goods on payment of duty. It is not even the case of revenue that throughout these capital goods were exclusively used for manufacture and clearance of finished goods exempt from payment of duty. 4.10 As there is no denial of the fact that appellants have utilized theses capital goods for manufacture and cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir acts as unintentional and went ahead took the credit with an intent to utilize the huge Cenvat credit of the capital goods. They have, thereon, submitted incorrect periodical Returns in Form ER-1 by mis-declaring the wrongful credit with intent to avail and utilize it in contravention of the Rules as discussed aforesaid. The Cenvat credit availed and utilized by them, which is available only to the manufacturer of dutiable goods was therefore ab initio wrong. Now, as regards their intention for the two main contraventions, there was clear intention to avail the credit not due to them when they have admittedly after almost one year of receipt of the capital goods availed after the exempt goods became dutiable without specifically making any correspondence in this regard or declaring in the returns. As regards the second contravention of misclassification, there is a sharp contradiction in the claim of assessee so far as the classification of "Gypsum Plaster Board" and "Jointing Compound" is concerned. On the one hand, they have correctly classified "Gypsum Plaster Board" as an "article of compositions based on plaster" in which besides &qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise would have remained idle, they did the act and to substantiate it carried out misclassification also. Thus, it is clear that the assessee has deliberately made a conscious attempt to mis- declare the credit as correct and the product as dutiable activities carried out by them as 'manufacture' and to suppress the basic fact that the credit availed on capital goods was availed after a lapse of a long time, after utilizing the machinery for manufacture of goods attracting no duty and one of the product was in fact carrying nil duty when placed under proper heading. Therefore, their acts and omissions were deliberate, intentional, unlawful and done with the sole intent to avail a credit not available at the beginning itself. Therefore, the extended period under proviso to Section 11 A (1)of the Central Excise Act, 1944, read with Rule 14 of the Cenvat Credit Rules, 2004, for demand and recovery of such Сenvat credit wrongly availed is rightly invoked and their contentions in this regard are not sustainable. (74) It is also worthwhile to note that as mentioned in the notice at the beginning itself the assessee classified the disputed item under a different headi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f time and as soon as the exemption was withdrawn and it was decided by them to start paying duty accordingly, presented classification of their particular goods under a heading suited to their credit and now, have made a volte face claiming a different chemical base of their product. There is no record to show that they had made any reference seeking to know whether their intention to take credit was correct or why they were classifying the goods under a particular head. As regards the returns filed from time to time and the Cenvat credit record or mention of the fact about use of capital goods can not clearly indicate that the capital goods are used in exempt product, after lapse of time and after decision to pay duty. As regards the scrutiny of the records conducted on their records, it is seen that nothing is placed on record to substantiate that their entire activity from the beginning was subjected to any study. Therefore, the case is correctly covered by extended period of Section 11A ibid and so attracts statutory penalty. The case laws cited by them therefore, do not cater to their case. (76) The other proposal in the notice is to confiscate the capital goods valued at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier General Manager Finance) of the assessee liable to proposed penalty under Rule 15 ( 1) of the Cenvat Credit Rules, 2004." 4.12 From the above it is quite evident that all the facts in respect of availment of CENVAT Credit on the capital goods, input services and the clearance of the finished goods were in the knowledge of the department throughout. Even if there were some interpretational issues the same cannot be said to be the reason for invoking the extended period. Hon'ble Supreme Court has in case of L.M.P. Precision Eng. Co. Ltd. [2004 (163) E.L.T. 290 (S.C.)] "18.The next issue is whether the extended period of limitation could be invoked by the appellant for the purpose of raising the impugned demand against the respondent. Rule 173B of the Rules requires inter alia that every assessee shall file with the proper officer for approval a list in such form as the Collector may direct showing the "full description" of the goods manufactured. The form in which the application is required to be submitted has been prescribed as the C.L.I Form. The Form requires "a full description of each item of the goods produced, manufactured with warehouse together with the description ..... X X X X Extracts X X X X X X X X Extracts X X X X
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