By TIOL News Service

MUMBAI, NOV 22, 2017: THE appellant manufactured excisable goods i.e. Bitumen Emulsion which was cleared on payment of duty. They were also preparing Polymer Modified Bitumen (PMB) and the same was also cleared on payment of duty. From 01.2.2012, they stopped paying duty on PMB.

Dutiability of the product PMB was in dispute and it was held by the Supreme Court in the case of  Osnar Pvt. Ltd. = 2012-TIOL-03-SC-CX  [Order dated 13.01.2012] that the process does not amount to manufacture.

The appellant was availing cenvat credit on input and input services which were common to both products. The department was of the view that since the product PMB was not a manufactured product, there is no need to pay duty on the same.

Alleging that the appellant had wrongly availed the cenvat credit on input and input services attributable to this product, demand for reversal of the credit was made.

The second issue  concerns the transfer of CENVAT credit balance from the unit M/s TVBIPL which was merged with the appellant firm. The department sought to deny the credit which was merged with the appellant's account from M/s TVBIPL by citing the reason that in terms of Rule 10 of CCR, the appellant failed to obtain the permission of the jurisdictional Dy. Commissioner as required under the Rule.

The adjudicating authority confirmed demand amounting to Rs. 7,12,73,212/-, imposed penalties and appropriated the amount of Rs. 3,33,16,326/- already reversed by the appellant.

The appellant is before the CESTAT and submits -

+ The appellant already paid tax amounting to Rs. 60,89,453/- on the product PMB, hence, during the impugned period there was no need to reverse the cenvat credit availed which already stands reversed by payment of above duty.

+ Rule 10 of the Cenvat Credit Rules requiring the permission of the jurisdictional Deputy Commissioner was included only w.e.f. 02.02.2017. The dispute pertains to much earlier period when there was no such stipulation in Rule 10. However, they are in a position to satisfy the Dy. Commissioner that the condition of Rule 10(3) requiring that at the time of transfer of credit the stock of input as such and those in process was transferred alongwith factory and the input and capital goods are duly accounted.

+ Case laws cited in support are Ajinkya Enterprises =  2012-TIOL-578-HC-MUM-CX , Creative Enterprises = 2008-TIOL-784-HC-AHM-CX , Hewlett Packard India Sales Ltd. =  2011-TIOL-777-HC-KAR-CX

The AR supported the order by reiterating the findings contained therein.

After considering the submissions, the Bench observed thus –

++ It is on record that the appellant has paid the duty on the product PMB inspite of the fact that the Apex Court has held that it has not been manufactured. It is settled position of law that once duty has been paid it is to be considered as a reversal of the cenvat credit availed as has been held by the Hon'ble Gujarat High Court in Creative Enterprises = 2008-TIOL-784-HC-AHM-CX  which was upheld by the Hon'ble Supreme Court .

++ It is on record that the appellant has already reversed an amount equal to 6% of the value of PMB as stipulated under Rule 6(3). On a perusal of Rule 6(3) it is seen that the requirement of paying an amount @ 6% of the value of exempted goods has been stipulated to take care of the situation when common inputs are used in the manufacture of dutiable as well as exempted goods. In the present case, there is a distinction inasmuch as the Apex Court has held that the product PMB does not amount to manufacture. But keeping in mind the fact that the stipulation in Rule 6(3) is a mechanism to expunge a part of the credit which is attributable to the goods which do not suffer duty, the adjudicating authority's view that the entire credit taken should be expunged is perverse. It is also seen that an Explanation-1 has been inserted in Rule 6 to the effect that for the purpose of this rule, ‘exempted goods' shall include non-excisable goods cleared from the factory for a consideration.

++ By following the requirement of Rule 6(3) the appellant has already paid an amount @ 6% of price of PMB which in our view suffices. We are of the view that there is no justification for demanding reversal of the entire credit taken.

++ The only ground raised in the show cause notice is that the permission of the jurisdictional Dy. Commissioner was not taken as required under Rule 10(3) of the Cenvat Credit Rules. The specific rule was inserted in Rule 10 only w.e.f. 02.02.2017. However, Rule 10(3) requires the satisfaction of the Dy. Commissioner. It appears that the appellant is in a position to satisfy the Deputy Commissioner on the requirement of Rule 10(3).

To the aforesaid extent, the matter was remanded.

The appeal was partly allowed.

(See 2017-TIOL-4095-CESTAT-MUM)