By TIOL News Service

AHMEDABAD, MAR 13, 2013: THE appellants were engaged in manufacture of tubes and pipes falling under Chapter 73 and availing benefit of CENVAT credit of duty paid on inputs/capital goods used in the manufacture of final products. Appellants received HR coils/steel plates from M/s. Essar Steel Ltd. on account of Petron Civil Engineering Pvt. Ltd. who had given an order to the appellant for manufacture of MS pipes to be produced on job work basis for supply of the same to Gujarat Water Infrastructure Ltd. for the purpose of supply of drinking water.

The said supply to Gujarat Water Infrastructure Ltd. was exempted from excise duty vide Notification No.6/2002-CE dated 1.03.02. The appellant took the CENVAT credit of the entire amount of the excise duty paid on such steel plates by M/s. Essar Steel Ltd. and reversed 8% of the value on the exempted goods i.e. pipes cleared by them to Gujarat Water Infrastructure Ltd.

The audit party raised an objection that the appellant is liable to reverse entire amount of CENVAT credit taken on such steel plates as they were aware that the said plates were to be utilised for manufacturing of the pipes for supply to Gujarat Water Infrastructure Ltd.

Consequently show cause notice was issued for the differential duty to be paid by the appellant.

The lower authorities confirmed the demand along with interest and penalty.

Before the CESTAT, the appellant submitted that the provisions of Rule 6 have been followed by them as according to them once reversal of 8% of the value of the exempted goods is made they are eligible to take CENVAT credit of the duty paid on inputs received by them. For this proposition, they refer to Board's circular No.591/28/2001-CX dated 16.10.01, circular No.654/45/02-CX dated 19.08.02 and circular No.739/55/03-CX dated 28.8.03. Reliance is also placed on the decision in Nicholas Piramal (India) Ltd. = (2009-TIOL-649-HC-MUM-CX). The ground of time bar is also raised inasmuch as they had given a declaration to the jurisdictional Deputy Commissioner before clearance of such final products in the year 2004 itself.

The Revenue representative reiterated the findings of the lower authority.

The Bench observed -

"5. The issue involved in this regard is whether the appellant is eligible to avail CENVAT credit paid on inputs i.e. H.R. Coils received by them for manufacture of pipes to be supplied to Gujarat Water Infrastructure Ltd. by availing exemption under Notification No.6/2002-CE as amended from time to time.

6. On the perusal of the records, we find that it is not in dispute that the said H.R. Coils received by the appellant were exclusively used for manufacturing of MS pipes to be sent to Gujarat Water Infrastructure Ltd. by availing exemption Notification No.6/2002-CE as amended. It is also undisputed that the appellant had maintained the separate records and also has availed the CENVAT credit of the duty paid on said inputs. We find that provisions of Rule 6(1) of the CENVAT Credit Rules. 2002 will be applicable in this case. The said rules as under:

"RULE 6. Obligation of manufacturer of dutiable and exempted goods.-

(1) The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2) :

Provided the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12B of the Central Excise Rules, 2002 on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule."

7. It can be seen from the above reproduced Rule 6(1) that CENVAT credit shall not be allowed on the quantity of input which is used the manufacture of exempted goods. The argument of the ld. counsel that they have not maintained separate accounts and as much as they have reversed an amount of the 8% of the value of the exempted goods will not hold any water in as much as that there is nothing on record to show that there was use of the H.R. Coils for dutiable products. An attempt was made by the ld. counsel to submit that they have cleared that MS scrap arising out of utilisation of such H.R. Coils was on payment of duty. By any stretch of imagination, scrap cannot be considered as manufactured product at least in the case in hand before us. We also find that the General Manager of the assessee has clearly and categorically stated that the H.R. Coils which were received by them on account of Petron Civil Engineering Pvt. Ltd. were used only for the purpose of manufacturing of pipes which were cleared without payment of duty. This being the factual matrix, we find that the appellant cannot claim the benefit of Rule 6(3) by debiting the amount equivalent to 8% of the value of the exempted goods and availed CENVAT credit on the H.R. Coils received by them. On merits we do not find any case in favour of the assessee.

8. The ld. counsel submitted that the issue is covered by the decision of the Hon'ble High Court of Mumbai in the case of Nicholas Piramal (India) Ltd. (supra) will not carry his case any further, in as much that provisions of Rule 6(1) cannot be read in isolation and if the goods are used only for exempted product, then the credit is not available but if it can be proved and said inputs were used for manufacturing of dutiable products, then the benefit of Rule 6(3) can be extended to assessee. As we have already pointed out that in this case the appellants have not produced any evidence to show that the appellants had used these H.R. Coils for the manufacture of dutiable products also.

8. As regards the limitation, we find that the appellant cannot resort to limitation as appellant had never declared to the department that they are availing CENVAT credit of the duty paid on H.R. Coils which were exclusively used for the manufacturing of pipes which were to be cleared from their factory premises by claiming exemption under Notification No.6/2002-CE as amended from time to time. We concur with the findings recorded by the first appellate authority on the limitation."

In fine, the CESTAT confirmed the demand but gave the option to the appellant to pay the differential duty within 30 days along with interest so as to get the benefit of reduced penalty to the extent of 25% as per the law settled in the case of Akash Fashion Prints Pvt. Ltd. = (2009-TIOL-125-HC-AHM-CX).

Subject to such modification by the CESTAT, the appeal was rejected.

(See 2013-TIOL-432-CESTAT-AHM)