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TMI Blog2024 (5) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (3) permitting proportionate reversal credit in respect of common inputs used for manufacture of both dutiable and exempted goods which have been held to be retrospective, the demand made, by asking the appellant to pay the amounts @ 8% of value of exempted goods cannot be sustained. In any case this will be relevant only if on verification it is found that appellant was not maintaining separate records for common inputs used in manufacture of both dutiable and exempted goods. It has been the case of the appellant that they were maintaining the separate records, and have referred to Annexure 5 in Volume II of the Paper book. These documents as per which the separate records were claimed to have been maintained have to be reconsidered by the original authority and re-determine the issues involved. These documents cannot be brushed aside for the reasons stated in the impugned order. The impugned order is set aside - matter remanded back to original adjudicating authority for de-novo consideration - appeal allowed by way of remand. - MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) AND MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) Shri Atul Gupta, Advocate for the Appellant Shri Santosh Kumar, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sand silica, and other chemicals and purchased broken glass being consumed in the manufacture of the aforesaid glass and glassware (dutiable/exempted), were being fed into the same furnace through a belt, which was run by the motor. Thus the raw material used in the manufacture of exempted goods and dutiable goods could not be segregated at this stage. It was found that there were a variety of tumblers and other glassware items produced by the process in which the press machines were used, which were dutiable and the simultaneously there were a number of variety of tumblers/chimney/lemon sets produced by them from the same tank furnace by the mouth blown process, which were exempted from the payment of the excise duty in terms of the Notification No. 5/2006-CE dated 01.03.2006, but no separate records of variety-wise/size-wise records were maintained by them to arrive at the weight of each item in both the category of the final finished goods. Further it was found that the inputs and raw material viz. soda ash and other chemicals used in both the category of the final products were stored at the same place and no separate inventory of input and input services being maintained by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period from July 2005 to March 2010 was issued to the party asking them to show cause as to why :- 1. The amount of Rs. 3,03,68,017/- (Rupees Three Crore Three Lakhs Sixty Eight Thousands and Seventeen only) may not be paid by them in terms of the provisions of Rule 6(3)(b) read with Rule 14 of Cenvat Credit Rules,2004 for the contravention of the provisions of Rule 6(2) of the Cenvat Credit Rules,2004 in the instant case 2. The interest as applicable to during the relevant period is not paid by them in terms of Section 11AB of the Central Excise Act, 1944 read with Rule 14 of the Cenvat Credit Rules, 2004. 3. Penalty should not be imposed upon them under Rule 15 of the Cenvat Credit Rules, 2004 for the contravention of Rule 6(2) and 6 (3) of the CENVAT Credit Rules, 2004. 2.10 Show cause notice has been adjudicated as per the impugned order referred in para 1 above. 2.11 Aggrieved appellant have filed this appeal. 3.1 We Have heard Shri Atul Gupta, Advocate for the Appellant and Shri Santosh Kumar, Authorized Representative for the revenue. 3.2 Arguing for the appellant learned counsel submits: The issue is entirely covered in the favour of appellant in the case of one of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -rule (2). Rule 6(2) of the Cenvat Credit Rules, 2004 prior to its amendment with effect from 01.04.2008 provides as under: Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, except inputs intended to be used as fuel, 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 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. Sub-rule (3) provides that Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer or the provider of output service, opting not tomaintain separate accounts, shall follow either of the following conditions, as applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manufacture of exempted goods. The Rule provides two options to the manufacturer of both dutiable and exempted products, one is to keep separate account of inputs used for both the products; the other is to pay 10% of the value of exempted products. Further, from the simple reading of the amended rule, it becomes very exempted products clear that before the insertion of provision of proportionate reversal of credit from 01.04.2008, the manufacturer or the service provider was given an option to either make separate inventory/records for the inputs/input services used in the manufacture of dutiable as well as exempted goods, or pay-back the amount as the prescribed percentage of the price of the exempted goods. I observe that in this case, the department has alleged that the party has taken credit of input and input services used in or in relation to manufacture of dutiable as well as exempted product contrary to the provisions of Rule 6 of the Cenvat Credit Rules, 2004, in as much as instead of maintaining proper inventory by co-relating the quantities of inputs and output finished goods, they have artificially maintained the records, without leaving certain quantity of inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the party, as well as the ER-1 Returns filed by party, and I observe that in the stock registers maintained by them viz RG-1 amp; private records, entries of finished goods have been made only in numbers (Dozens/Pieces), whereas in the RG-23A Pt-1 amp; private records for inputs, entries of raw materials (received amp; issued) have been made only in Kilograms. Surprisingly, the entries in ER-1 Returns filed by the party, the entries of production and clearance of finished goods have been made both in Dozens as well as Kgs. In these circumstances, 1 find that departmental allegation has substantial basis in as much as in absence of any such co-relation, it is virtually impossible to quantify the weight of inputs used in the manufacture of finished goods (dutiable as well as exempted). especially when they all are different items of Kitchenware of various sizes. accounted for in numbers. Since no record has ever been maintained by the party to establish the co-relation of input and finished goods, the acceptance of maintenance of separate records has no meaning. I am of the considered view that the weight shown in ER-1 returns appears to be imaginary figure- work, and an attempt to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. The words used in the Rules are the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input services meant for use in the manufacture of dutiable final products or in providing output services and quantity of input meant for use in the manufacture of exempted goods or service Thus it is a strict liability of the manufacturer and burden to prove also lies upon them that they fully discharged-their liability In the instant case, I find that the party was not maintaining separate records of inputs used in the exempted final products as well as in the dutiable final products. Rather, they left a certain quantity of input as well as proportionate amount of Cenvat credit of such input un-utilized presumably on the basis that those inputs would have been used in the manufacture-of exempted products. In my opinion, as already held earlier, it is virtually impossible to co-relate the quantity of inputs consumed in the manufacture of finished goods, especially when the party was manufacturing a number of different varieties of exempted/ dutiable final products and were maintaining records by making entries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding application of Rule 14 as contested by the party, I find that the very basis of the show cause notice is the wrong availment and utilisation of CENVAT credit in contravention of the provisions of rule 6 of the Cenvat Credit Rules, 2004 which has already been discussed above 4.3 Undisputedly appellant was engaged in the manufacture and clearance of dutiable articles of glass viz. tableware/ kitchenware, Glass Jars as well as exempted article of glass (mouth-blown glass and glassware) viz. glass chimneys for lamps and lanterns and tableware/kitchenware and Bangles. They were availing Cenvat Credit facility as per Cenvat Credit Rules, 2004 on inputs as well as input services. At the time of visit of central excise officers, it was found that the party was not maintaining separate records/ inventory for the inputs/input services and there was only one tank furnace installed in factory in which dutiable as well as exempted goods were being manufactured. The inputs were stored at the same place. They were also availing Cenvat credit of Service Tax on goods transport agency as well as Service Tax paid on transportation of gas through pipeline, for which no separate inventory/ re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Emami Ltd., referred to by the counsel for appellant and following has been held: 4. On careful consideration of the submission made by both the sides and perusal of record, we find that limited issue to be decided is that once the appellant have reversed the proportionate Cenvat credit on common input service attributed to the exempted final product, whether, the appellant are liable for payment of 10%/6%/5% of the value of such exempted goods. This issue is no longer res-Integra as even though the reversal was made on proportionate input service attributed to the exempted goods at a latest stage along with interest the situation became as if no Cenvat credit was availed. Consequently, the demand of 10%/6%/5% cannot be sustained, in this support some of the Judgments are reproduced below: In the case of Pi industries (Supra) this Tribunal has passed the following order: 4. He also submits that it is an accepted principle of law that reversal of Cenvat Credit attributable to exempted goods or service amount to not taking Cenvat credit at all. However, the Ld. Commissioner while appropriated entire amount of Cenvat credit along with interest attributable to common input service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to duty and also other final products which are exempted goods may pay an amount equivalent to CENVAT credit attributable to the inputs or input services used in or in relation to the manufacture of exempted goods before or after the clearance of such goods. The procedure for claiming the benefit under sub-rule (7) of Rule 6 of the Cenvat Credit Rules, 2004 was also prescribed under the Finance Act, 2010 vide Section 73(2) (vide infra). 73. Amendment of rule6 of CENVAT Credit Rules, 2004. (1) .... (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 there under 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) .... (4) .... (5) .... In the present matter Ld. Commissioner allowed the benefit to the appellant only pertaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neering Company Ltd (Supra), the Mumbai Tribunal s bench has passed the following order: 5. We have carefully considered the rival submissions. 5.1 It will be relevant at this juncture to peruse the provisions of Rule 6 which is reproduced below : Rule 6. . 5.2 In the present case it is an admitted fact the appellant did not maintain separate accounts for the input services used in or in relation to the manufacture of product dutiable as well as exempted products even though they maintained such accounts in respect of inputs. Therefore, two options were available to them, i.e., either to pay 5%/10% of value of the exempted goods or pay an amount equal to the credit attributable to the input services used in or in relation to manufacture of exempted goods subject to the provisions of Sub-Rule (3A). When the mistake was pointed the appellant reversed not only the credit taken on input services used in the manufacture of exempted goods but also the credit taken on input services used in the manufacture of dutiable goods. In other words, the appellant reversed the entire credit taken along with interest thereon. Therefore, Rule 6(3)(i) will not have any application, when a credit is ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of non-dutiable intermediate goods, namely, Dead Burnt Magnesite which was partly sold in the market and partly consumed in the manufacture of dutiable final products, namely, refractory bricks and ramming mass . The period involved in the present case is Jan. to Mar. 08. No CENVAT credit was taken on Furnace Oil used for the manufacture of Dead Burnt Magnesite during the months of Jan. and Feb. 08. During the month of Mar. 08, although CENVAT credit was taken, proportionate credit was reversed on the basis of actual unit consumption of Dead Burnt Magnesite . With effect from 1-4-2008, the provisions of Rule 6 were amended providing an additional option to an assessee not maintaining separate accounts for common inputs, to reverse the credit attributable to the exempted goods on the basis of the formula set out under Rule 6(3A) which reads as under:- (3A) 3. As per the decision of the Tribunal in Foods, Fats Fertilisers Ltd. v. Commissioner of Central Excise, Guntur [2009 (247) E.L.T. 209 (Tri.-Bang.)], this amendment being procedural, is held to be retrospective in operation. Further, the Finance Act, 2010 has retrospectively amended Rule 6 of the CENVAT Credit Rules, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate to the value of exempted services or not proper otherwise. The only ground that the appellant have not followed the laid down procedure of availing the option of Rule 6(3A) like not declaring value of turnover of exempted services in their periodic service tax return, etc., can be minor procedural lapses, but same cannot become ground for denying a substantial benefit to the appellant. 9. We are also of the view that once the proportionate reversal of the Cenvat credit has taken place, that tantamount to not availing of the input services credit of the common inputs which are going into the exempted services. While holding this view we take shelter of the decision of the Hon ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur - 1996 (81) E.L.T. 3 (S.C.). 10. We also take note of this Tribunal s decision on the same issue in case of M/s. The Oberoi Raj vilas v. Commissioner of Central Excise, Jaipur reported under 2018 (5) TMI 1715 -CESTAT New Delhi, the relevant extract of same are reproduced here below :- 9. From the above, we note that the appellant has followed the proportionate method for availment of credit on common in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of the copper wires were duty paid and that the amount of duty paid on the inputs had been entered by the appellants to their credit in the ledger which has to be maintained under the Excise Rules. The credit amount can be utilised by the manufacturer towards payment of duty of excise leviable on the final products. Since the copper wires manufactured by the appellants had become duty free, there was no question of any adjustment of the credit amount against the duty payable on these copper wires. Moreover, Rule 57C specifically provides that credit of duty cannot be allowed if final products were exempt from payment of excise duty. Faced with this situation, the appellants reversed the credit entries of duty paid on inputs which were utilised for manufacture of the duty free copper wires. 5. The case of the Excise Department is that the reversal of credit entries are not permitted by the rules. The assessee is not entitled to remove the copper wires without payment of duty since credit of the duty paid on the inputs used in the manufacture of copper wire had already been taken in accordance with Rule 57A. Once appropriate entries have been made in the register, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try in the credit account 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. 8. The appeal is therefore, allowed. The order of the Customs, Excise and Gold (Control) Appellate Tribunal dated 17th May, 1995 is set aside. There will be no order as to costs. In the case of Welspun Corp. Ltd. this Tribunal has passed following decision: 6. We have carefully considered the submissions made by both the sides and perused the records. The limited issue to be decided by us is that in a case where at the time of receipt of input services, the appellant availed Cenvat credit on the entire service and on pointing out by the audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as not taken ab initio. The Government has introduced the facility of proportionate reversal w.e.f. 1-4- 2008 to mitigate the difficulties faced by manufacturers to maintain separate accounts for inputs/input services as well as when the same are commonly used for dutiable as well as exempted products/services. Though detailed procedure starting with an option to be exercised by manufacturer has been prescribed, in the present case, the appellant has not followed the same. However, it is on record that they have already reversed an amount claimed to be proportionate. It is also pertinent to record that this has been done by the appellant even before the issue of the show cause notice in this case. We are of the considered view that the failure of the appellant to follow the procedure perfectly should not come in the way of extending the substantial benefit of proportionate reversal. However, we find that in the order passed by the lower authority, he has not given any finding as to whether the reversal already made satisfies the test of proportionate reversal in terms of quantum of reversal. Hence, we are of the considered opinion that the matter is to be remanded to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, therefore, remand the matter to the adjudicating authority for proper verification of appellant s claim of reversal of Cenvat credit on inputs attributable to manufacture of exempted final products on the basis of appellant s records after affording opportunity to the appellant to explain their case before deciding the issue of quantum of Cenvat credit in remand proceedings. The Hon ble Supreme Court in the case of Bombay Dyeing Mfg. Co. Ltd. - 2007 (215) E.L.T. 3 held in para 8 that : 8. There is no merit in this civil appeal. Under the notification, mode of payment has not been prescribed. Further, exemption is given to the final product, namely, grey fabric under the Central Excise Act, 1944, levy is on manufacture but payment is at the time of clearance. Under the Act, payment of duty on yarn had to be at the spindle stage. However, when we come to the Exemption Notification No. 14/2002-C.E., the requirement was that exemption on grey fabrics was admissible subject to the assessee paying duty on yarn before claiming exemption and subject to the assessee not claiming Cenvat credit before claiming exemption. The question of exemption from payment of duty on grey fabrics arose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer of goods or the provider of output service shall intimate in writing to the Department regarding the option exercised. In the present case, admittedly there is no intimation given by the appellant informing the exercise of his option. The argument of the Department is that when the appellant has not intimated his option in writing then the appellant is bound to pay the duty amount calculating under the first option. According to me, this argument is devoid of merit, because the said Rule does not say anywhere that on failure to intimate, the manufacturer/service provider would lose his right to avail second option of reversing the proportionate credit. Sub-rule (3A) of Rule 6 is only a procedure contemplated for application of Rule 6(3). Consequently, the argument of Revenue is that the appellants exercising option is mandatory and on its failure, the appellant has no other option but to accept and apply Rule 6(3)(i) and make payment of 5%/10% of the sale price of the exempted goods or exempted services is not acceptable, because the Rule does not lay down any such restriction and this has been held in the judgments cited supra. It has been held in the judgment cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above terms. In the case of Mercedes Benz India (P) Ltd (supra) the Mumbai bench has passed the following decision: 5. We have considered the submissions made by both sides. From the facts and circumstances of the case and arguments put forth by rivals, we find that the issue to be decided by us is whether appellant is required to pay 5% of total sale value of the goods traded by them in terms of Rule 6(3)(i) when the appellant paid the actual credit attributed to the quantum trading sale in terms of Rule 6(3A) alongwith interest following the option available under Rule 6(3)(ii). Provisions for payment of 5% of the sale value of exempted goods is provided as one of the option given in Rule 6(3) of Cenvat credit Rules which is reproduced below :- Ld. Adjudicating Authority demanded 5% of the total sale of the trading turnover of goods on the ground that option provided under Rule 6(3)(i) is applicable on the ground that claim of the appellant on the option provided under Rule 6(3)(ii) is not available for the reason that appellant has not complied with condition provided under sub Rule (3A) of Rule 6 which provides that manufacturers of the goods shall follow certain procedure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition is that the appellant is required to pay an amount as per the formula provided under sub-rule (3A) on monthly basis. However, we find that as per the provision, payment on monthly basis is provisional basis, therefore it is not mandatory that whole amount or part of the amount was required to be paid on every month. The appellant though belatedly calculated the amount required to be paid in terms provided under sub-rule (3A) of Rule 6, therefore to fulfill the condition, assessee should pay the said amount, which has been complied by the appellant. 5.2 As regard the delay in payment, if any, the appellant have discharged the interest liability on such delay. Regarding the compliance as provided under Clause (a) of sub-rule (3A) of Rule 6 the appellant while exercising this option is required to intimate in writing to the Jurisdictional Superintendent, Central Excise, the following particulars namely : (i) Name, address and registration No. of the manufacturer of goods or provider of output service; (ii) Date from which the option under this clause is exercised or proposed to be exercised; (iii) Description of dutiable goods or taxable services; (iv) Description of exempted go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide the same. 5.4 We find that the appellant admittedly paid an amount of Rs. 4,06,785/- plus interest, this is not under dispute. Therefore in our view, the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand of huge amount of Rs. 24,71,93,529/- of the total value of the vehicle amounting to. Rs. 494,38,70,577/- sold in the market cannot be demanded. We are also of the view that Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. It is also observed that in either of the three options given in sub-rule (3) of Rule 6, there is no provisions that if the assessee does not opt any of the option at a particular time, then op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as dutiable goods and even at a later stage the assessee reverse the proportionate credit with payment of interest, if there is any delay in reversal of such credit the demand of 10%/6%/5% shall not sustain. Therefore, following the aforesaid judgments we are of the considered view that the appellant are not liable for payment of an amount equal to 10%/6%/5% of the value of the exempted goods. Hence the same is set aside. However, the reversal of the proportionate credit along with interest paid by the appellant is correct and the same is maintained. 4.6 From the above decisions and the amendments made in the provisions of Rule 6 (3) permitting proportionate reversal credit in respect of common inputs used for manufacture of both dutiable and exempted goods which have been held to be retrospective, the demand made, by asking the appellant to pay the amounts @ 8% of value of exempted goods cannot be sustained. In any case this will be relevant only if on verification it is found that appellant was not maintaining separate records for common inputs used in manufacture of both dutiable and exempted goods. 4.7 It has been the case of the appellant that they were maintaining the separa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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