By TIOL News Service

MUMBAI, AUG 16, 2017: THE department's case is that the notification no. 30/2004-CE provides a condition "nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs has been taken under the provisions of CENVAT Credit Rules, 2002." Therefore, by taking the credit at the time of receipt of the inputs this condition was violated by the appellant. And the fact that the appellant had reversed proportionate credit attributable to the exempted goods does not set right the violation committed.

SCN was issued and the adjudicating authority denied the exemption, confirmed the demand of Rs.57,50,506/- and also demanded interest.

Aggrieved, the appellant assessee is in appeal before the CESTAT. The Revenue is also apparently not happy with the non-imposition of penalty.

The appellant submitted that at the time of receipt of inputs it is not known as to how much quantity would be used in exempted goods and how much will be used in dutiable goods and, therefore, the only way out to comply with the condition of non-availment of cenvat credit is by reversing the CENVATcredit attributed to the exempted goods. Reliance is placed on a host of Board Circulars viz. 796/28/2004-CX dated 28.07.2004; 845/3/2007-CX dated 01.02.2007, 858/16/2007-CX dated 08.11.2007 and the decisions in Ashima Dyecot Ltd. - 2008-TIOL-659-HC-AHM-CX upheld by Supreme Court, CTM Textile Mills - 2014-TIOL-08-CESTAT-AHM.

The AR emphasized that the Supreme Court in a plethora of cases held that conditions provided in the notification should be strictly followed otherwise the exemption notification shall not be applicable;that the lower authorities have rightly denied the exemption and confirmed the demand but the adjudicating authority has wrongly refrained from imposing penalty and this has to be set right.

After considering the submissions made, the Bench observed -

"4. … We find that after issuance of show-cause notice and adjudication of the case, there has been important development on the legal issue. Since there was a practical difficult that for a manufacturer to manufacture and clear goods dutiable under notification no. 29/2004-CE as well as under exemption notification no. 30/2004 it was not possible to segregate the inputs. At the time of receipt of inputs, it is not known to the assessee how much quantity is used in the exempted goods and how much in dutiable goods. Considering this practical difficulty the Hon'ble Supreme Court in the case of Bombay Dyeing & Mfg. Co. Ltd - 2007-TIOL-141-SC-CX held as under:-

x x x

5. As per the above decision, the Apex court held that if the credit is reversed without utilization at any stage, the notification should be allowed. Accepting the view of the Supreme Court judgment, the Board also clarified the issue. The said circular [858/16/2007-CX, dated 8-11-2007] is reproduced below:- x x x

From the above circular also, the Board has clarified that if the credit of inputs used in the exempted goods under notification no. 30/2004 is reversed before utilisation, it would amount to credit not having been taken. Accordingly, the condition of the notification stands met out. In the present case, the fact is not under dispute that the appellant availed the credit at the time of receipt of the inputs which was partially used in the exempted goods but at the time of clearance of the exempted goods, they have reversed the credit. Therefore following the above Hon'ble Supreme Court decision as well as the in terms of Board circular dated 08.11.2007, the appellants have complied with the condition of notification no. 30/2004-CE. "

Holding that the demand is not sustainable, the impugned order was set aside and the appeal of the assessee was allowed with consequential relief. Consequently, revenue's appeal was dismissed.

(See 2017-TIOL-2938-CESTAT-MUM)