By TIOL News Service

MUMBAI, AUG 13, 2015: THE appellant is engaged in the manufacture of tractors and parts thereof and avail CENVAT credit. Vide Notification No. 23/2004-CE dated 9.7.2004, tractors [CH 8701] became exempt from payment of central excise duty. Thus from 9.7.2004 onwards theappellant was not required to pay CE duty on the agricultural tractors so cleared.

The appellant was not in a position to immediately segregate the records of inputs which go into the production of exempted goods and which go into the dutiable goods. They, therefore, vide their letter dated 14.7.2004 informed the Revenue accordingly and mentioned that they will be paying an amount of 8% on the price of the exempted tractors as per the provisions of Rule 6(3)(b) of the CCR.

They also informed that they are taking steps so that they are in a position to segregate the inputs which go into the exempted goods and which go into the dutiable goods and as soon as the system is in place, they will switch over to other scheme viz. Rule 6(2).

The appellant vide letter dt. 31.8.2004 informed that w.e.f. 1.9.2004 they will not be availing cenvat credit on any input which is used in the manufacture of exempted tractors. Further, hydraulics which is an integral part of tractor and is otherwise chargeable to duty, they will be availing the credit of inputs used in the manufacture of hydraulic unit.

Nonetheless, in respect of such hydraulic unit which will be used in the exempted tractors, they will reverse the credit of duty on inputs used in such hydraulics. Other hydraulics would be cleared on payment of duty. They also informed vide the said letter that the department shall be informed about the stock of tractors as also the inputs lying in stores, work in progress and in finished goods as on 31.8.2004. Thereafter on 24.9.2004 they computed the total amount of cenvat credit availed by them on various inputs lying in stores, work in progress as also used in the finished goods which were available as on 31.8.2004 and reversed the credit (approximately Rs. 4.98 crores) by partly paying from the credit available and partly paying by cash.

By a SCN dated 6.10.2005 Revenue demanded an amount equal to 8/10% of the price of the exempted final product under Rule 6(3)(b) of the CCR, 2004 cleared during the period 1.9.2004 to 24.9.2004.

The CCE, Nagpur confirmed the demand of Rs. 7,05,16,944/- and added the usual accoutrements of interest and penalty.

The appellant is before the Tribunal and submits that the delay in reversing the credit was due to the detailed accounting and thereafter computation of the credit involved on hundreds of inputs lying in stores, work in progress and used in the manufacture of final exempted tractors; that w.e.f 1.9.2004, they have not availed the credit on inputs used in the exempted final product and have also started maintaining separate accounts for inputs used in exempted and dutiable goods as per Rule 6(2) and, therefore, there is no contravention of Rule 6 of the CCR.

The next submission is that it is only w.e.f 1.3.2007 that Rule 11 of CCR, 2004 was amended to insert sub-rule (3) mandating a manufacturer to reverse the input credit on the inputs in stores, work in progress and the final product when the goods become exempted. Further, the appellant, on their own had paid cenvat Credit of Rs. 4,98,83,659/- on 24.9.2004 but the Commissioner had confirmed the demand of Rs. 7,05,16,944/- without deducting the amount so paid. So also, by Section 72 of the FA, 2010, Rule 6 was amended retrospectively from 01.03.2002 permitting manufacturer to reverse the proportional credit if such inputs are used in relation to exempted final products.

Moreover,as the tractors became chargeable to nil duty w.e.f. 9.7.2004 credit of inputs taken before 9.7.2004 is not required to be reversed in view of the decisions in Premier Tyres Ltd. - 2003-TIOL-55-HC-KERALA-CX and Dai Ichi Karkaria - 2002-TIOL-79-SC-CX. Following decisions of Sonalac Paints and Coatings Ltd. - 2015-TIOL-77-SC-CX, Shree Rama Multi Tech - 2011-TIOL-940-HC-AHM-CX, Anil Products Ltd. - 2010-TIOL-528-HC-AHM-CX, Murli Industries Ltd. - 2010-TIOL-1586-CESTAT; Saboo Alloys Pvt. Ltd. - 2010-TIOL-13-HC-HP-CX, Ashok Iron & Steel Fabricators - 2002-TIOL-274-CESTAT-DEL-LB are also relied upon.

The AR reiterated the findings of the adjudicating authority and also submitted that in view of the decision in Nicholas Piramal (India) Ltd. - 2009-TIOL-649-HC-MUM-CX, once the credit on inputs is taken, then the appellants are required to pay 8/10% amount;that benefit of retrospective benefit under rule 6 introduced by FA, 2010 cannot be extended at this stage as held in R.R. Paints Pvt. Ltd. - 2012-TIOL-1718-CESTAT-MUM; that they have not filed any declaration for availing the scheme during 2010 and, therefore, cannot claim the benefit at this stage; that in view of apex court decision in Amrit Paper - 2006-TIOL-85-SC-CX, the condition of non availment of credit if final product is exempted would be rendered nugatory and redundant.

The Bench extracted the contents of rule 6(2) & 6(3)(b) of the CCR as it existed at the relevant time (as below) -

(1) x x x

(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods.

(3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:-

(a) x x x

(b) if the exempted goods are other than those prescribed in condition (a), the manufacturer shall pay an amount equal to eight percent 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.

and observed -

++ We do not find anything anywhere in the Cenvat Credit Rules or any other provision in the law that before switching over to rule 6(2) above, a manufacturer is required to reverse the credit of inputs available in its stores, work in progress and in the finished goods on that date and only after reversing the credit in the manufacturer can switch over to Rule 6(2).

++ In the absence of any such prohibition, we are unable to appreciate Revenue's contention that the appellant is required to pay an amount under Rule 6(3)(b) till 24.9.2004 i.e. the date when they reversed the credit attributable to inputs in its stores, work in progress and on the finished goods as on 31.8.2004.

++ We also note that from 1.9.2004 onwards the appellant has stopped taking credit as inputs meant to be used in exempt goods and were reversing credit on inputs used in hydraulic system if used in exempt tractors. Even in respect of the inputs on which they have taken the credit earlier, the same was reversed if the said input was in stores, work-in-progress or final product available with them. Thus, effectively no credit was taken on the inputs used in the goods cleared from 1.9.2004 without payment of duty. [Sonalac Paints and Coatings Ltd. (supra) relied upon]

++ We note that in the present case the amount demanded is not on the hydraulics but on the exempted tractors under Rule 6(3)(b) and in view of this factual position, we do not find any strength in the submission of the Commissioner (AR). Moreover, hydraulics is being cleared on payment of duty as also being used in exempt tractors.

The appeal was allowed.

In parting: More in the days to come…?

(See 2015-TIOL-1683-CESTAT-MUM)