CX - Clause (vi) of Notf 67/95 mandates that benefit is available if obligation prescribed in rule 6 of CCR is discharged - since appellant satisfies rule 6(1), benefit of Nil duty in r/o boxes manufactured for packing exempted toys is available: CESTAT
By TIOL News Service
MUMBAI, JAN 04, 2017: THE appellants manufacture toys and games [Heading 9504] chargeable to excise duty at the rate of 16% Adv. They also manufacture various toys, puzzles etc. classifiable under CH 95.02 and 95.03 and avail exemption under Notfn. 10/2003-CE dated 1.3.2003.
The appellants did not avail CENVAT Credit on any of the inputs used in the manufacture of either dutiable final product or exempted final products.
They also manufacture "packing boxes" [out of non-CENVAT TED inputs] for these toys and games and use them captively. Benefit of Nil duty under the aegis of notification 67/95-CE is being claimed in respect of these packing boxes.
The department was of the view that the benefit of exemption in terms of the aforesaid notification 67/95-CE is not available to the assessee as some of the final products are exempted from payment of excise duty and the appellants had also not discharged their obligation under Rule 6 of CCR.
The demand of CE duty was confirmed and this order was upheld by the Commissioner (Appeals).
So, the appellant is before the CESTAT.
It is submitted that the obligation under rule 6 of CCR has been discharged inasmuch as the appellant had not availed CENVAT Credit in respect of any inputs used in the manufacture of final product. And, therefore, the exemption under notification 67/95-CE had been correctly availed in respect of the intermediate product viz. packing boxes.
Reliance is placed on a plethora of decisions namely, Ambuja Cement Ltd - 2015-TIOL-321-SC-CX, Godavari Sugar Mills Ltd - 2007-TIOL-602-CESTAT-BANG, Sakthi Sugar Ltd - 2008-TIOL-1391-CESTAT-MAD [ Affirmed by Supreme Court ], Lanco Industries Ltd - 2008-TIOL-858-CESTAT-BANG, Sonic Electrochem (P) Ltd - 2002-TIOL-212-SC-CX, MSRTC Central Workshop - 2012-TIOL-581-CESTAT-MUM.
It is emphasized that in the above judgments even though the credit was taken initially but the same was reversed and the said act was considered as discharge of obligation of Rule 6 and benefit of Notification No. 67/95-CE dt. 16.3.1995 was allowed.
It is alternatively submitted that the boxes manufactured are meant exclusively for packing their product and hence cannot be bought or sold in the market and, therefore, are not marketable, hence not excisable.
The AR with the support of the following judgements submitted that the action by the department is correct and legal. [Ref. 2002-TIOL-856-SC-CUS, 2002-TIOL-376-SC-CX, 2004-TIOL-29-SC-CX, 2002-TIOL-26-SC-CX-LB, 2011-TIOL-631-CESTAT-DEL, 2010-TIOL-101-SC-CX .]
The Bench observed -
4. … From the plain reading of the above notification [67/95-CE] it is observed that in the proviso to … the notification it is provided that the exemption shall not apply to inputs used in or in relation to the manufacture of final product which are exempt from the whole of the duty of excise or chargeable to nil rate of duty. However, though the exemption is not available to the intermediate goods used in the exempted goods but exception was provided that even if the final product is exempted and the assessee discharge the obligation prescribed in Rule 6 of Cenvat Credit Rules, 2001 then in spite of the final product is exempted, the exemption on the intermediate goods is available in terms of the aforesaid notification. Now we have to see whether the appellant have discharged the obligation under Rule 6 of Cenvat Credit Rules, 2000 which is reproduced below:
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"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).
(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.
x x x"
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"From the above Rule 6 it can be seen that as per sub Rule (1) of Rule 6, the assessee is not required to avail the Cenvat Credit in respect of the inputs used in the manufacture of exempted goods. As per the fact of the present case it is undisputed fact that the appellant has not availed the Cenvat Credit in respect of any of the inputs used either in the final product or in the intermediate product i.e packing boxes. Therefore the condition of Sub-Rule(1) of Rule 6 stands complied with. The finding of the lower authority that since the appellant have not fulfilled Rule 6(2) therefore they have not discharged the obligation as required in the notification is misleading and absolutely incorrect for the reason that as per clause (vi) of the proviso to Notification, it does prescribe the obligation under Rule 6 only and Rule 6 (1) and Rule 6 (2) are alternative to each other. Therefore since the appellant have not availed Cenvat Credit it is squarely covered under Rule 6 (1). Rule 6 (2) applies only in such cases where the assessee avails the cenvat credit and follows the condition of Rule 6(2) such as payment of 8% of the value of the goods or maintaining separate account in respect of dutiable and final product and reversal of proportionate credit etc. which is not applicable in the present case as the appellant have not availed the Cenvat Credit at all in respect of any of the inputs, thereof they have discharged the obligation as required under Rule 6(1). We are therefore of the considered view that the appellant have discharged the obligation under Rule 6(1) accordingly they are legally entitled for the exemption notification No.67/95-CE dt. 16.3.1995 in respect of their intermediate product i.e. packing boxes…."
The impugned order was set aside and the appeals were allowed.
(See 2017-TIOL-44-CESTAT-MUM)
