TMI Blog2007 (4) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... e Notification No. 6/2001-CE since 1-3-01. The assessee avails Cenvat credit on input 'plastic crates' used for packing and distribution of their final products. A Show Cause Notice was issued to the assessee to recover 8% of the sale price of 'Slice' cleared during the period 1-11-03 to 30-9-04 in terms of Rule 6(3)(b) of Cenvat Credit Rules, 2002 (CCR' 02 for short) as the assessee had used the input plastic crates in the manufacture of both dutiable and exempted goods and did not maintain separate accounts of such inputs for such use, as prescribed. In conclusion of the proceedings, the Commissioner demanded an amount of Rs. 1,25,69,549/- from PIHPL under Rule 12 of Cenvat Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944 (the Act) along with appropriate interest. He also imposed a penalty of Rs. 12 lakhs on the assessee under Rule 13 of the CCR, 2002. 2. The proposals in the notice were confirmed and decided against the assessee for the reason that the assessee had not maintained separate accounts of receipt, consumption and inventory of plastic crates used for packing Slice' and aerated drinks cleared during the material period. The Commissioner did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es could not be considered as 'Cenvatable inputs'. According to them, once the crates were used for removing their final products, those crates ceased to be inputs on which credit could be availed. They argued that records were required to be maintained in relation to receipt, consumption and inventory of only common inputs on which Cenvat credit was available and which were meant for use in the manufacture of dutiable goods and exempted goods. Once the new crates had entered the manufacturing stream and the crates had been used once, the provisions of Rule 6 ceased to operate as regards those inputs. Therefore, provisions Rule 6(3)(b) of Cenvat Credit Rules, 2002 did not apply as regards used crates and hence the impugned order was not sustainable. 4. In the appeal, the appellants have submitted that when 'Slice' was exempted from payment of duty with effect from 1-3-2001, they had filed a declaration with the department informing that they were maintaining separate accounts for common inputs used in the manufacture of 'Slice'. They had also intimated the department vide their letter dated 24-8-2001, that they used only old crates for packing 'Slice'. The appellants had also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, Cenvat credit can be taken by the manufacturer on the basis of prescribed documents such as an invoice issued by a manufacturer for clearance of inputs, a bill of entry issued by an importer etc. Once the inputs have been put to its intended use, no further credit could be availed on such goods. The requirement of maintaining separate account ceases once the inputs have been accounted as issued for consumption. We find considerable force in the argument of the appellants that used plastic crates are not subject to the rules regulating the use of common inputs. It is not the case of the department that appellants have used new crates for clearing ex empted final products. Therefore, they have not violated the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 to attract the liability applicable to common inputs used in exempted and dutiable final products. Therefore, the demand made on the appellants on the premise that they are required to maintain separate accounts as regards the entire plastic crates in use by the appellants is incorrect. Rule 6 of CCR, 02 reads as under: 6. Obligation of manufacturer of dutiable and exempted goods. (1) The CENVAT credit shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 12, for recovery of CENVAT credit wrongly taken. In the present case, the goods involved are other than those specified under sub para 3 (a) of Rule 6. 8. We find that the impugned order is on the sole ground that the appellants had not followed Rule 6(2) of the CCR, 2002 and had not maintained separate accounts of receipt, consumption and inventory of used crates deployed for packing dutiable and exempted final products manufactured and cleared by the appellants. There is no dispute that the appellants had not taken credit of duty paid on 22% of the crates which is the percentage of 'Slice' out of the assessee's total production. It is also not in dispute that the appellants had not used new crates for packing 'Slice' in the material period. Since the appellants used inputs in the manufacture of exempted and dutiable final products, unless they had followed the provisions of Rule 6 of CCR, 2002, they were required to pay 8% (10% from 10-9-2004) of the sale price of the exempted final product (slice) cleared during the material period. The appellants have argued that when the used crates received back in the factory from distributors of the products of the appellants, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing material; i.e., crates. Additionally, the learned JCDR has submitted that the amount demanded is sustainable for the reason that no separate accounts were maintained as required under Rule 6(2) in respect also of FO from 16-5-2005. Furnace Oil (FO) was not covered by Rule 6(2) of CCR, 2004 till issue of Notification No. 27/2005-C.E. (N.T.), dated 16-5-2005. The Notification amended Rule 6(2) of CCR, 2004 by bringing inputs used as fuel also under the coverage of Rule 6(2) of CCR, 2004. The appellants had reversed an amount of Rs. 4,97,596/- being the Cenvat credit availed on furnace oil from 16- 5-2005 in 9/2005. The amount demanded was computed as 10% of the sale price of the exempted 'Slice' cleared by the assessee from 1-10-2004 to 30-9-2005. 10. The assessee has not maintained separate accounts as regards receipt, consumption and stock of the common input FO used in the manufacture of dutiable and exempted final products manufactured and cleared by the assessee during the material period. Therefore, the impugned clearances attract the provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2004. We note that in addition to the inclusion of fuels like FO under inputs in Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on inputs or capital goods. Similar ratio has been laid down by the Tribunal in the case of Precot Mills Ltd v. CCE, Tirupati [2006 (201) E.L.T. 356 (Tri- Chennai)]. The appellants also invited our attention to Circular No. 591 /28/2001-CX dated 16-10-2001 issued by the Board wherein it was clarified that in cases where common inputs are used in the manufacture of exempted and dutiable final products, and the assessee does not maintain separate accounts as prescribed or does not pay 8% of the price of the exempted goods, credit taken on inputs that had gone into the manufacture of exempted final products may be recovered. Their contention was that their case was covered by the said Circular issued by the Board. 13. The learned JCDR, on the other hand relied on the judgment of the Hon'ble Supreme Court in the case of M/s. Amrit Paper v. CCE, Ludhiana [2006 (200) E.L.T. 365 (S.C.) = 2006 -TIOL-85-SC-CX] wherein it was held as under: "57C. Credit of duty not to be allowed if final products are exempt. - No credit of the specified duty paid on the inputs used in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 19-8-2002 the Board clarified that an assessee who has not maintained separate inventory and has taken credit on common inputs to manufacture dutiable and exempted products, (except in the cases mentioned in sub-rule 3(a) of Rule 6) has no option but to reverse 8% of the price of the ex empted goods as per provisions of Rule 6(3)(b) ibid. 15. In the instant case, the assessee has not maintained separate accounts for common input FO used in the manufacture of both dutiable and ex empted final products. Therefore, in terms of Rule 6(3)(b) of CCR, 2004, PIHPL are liable to pay 10% of the sale price of 'Slice' cleared during the material period. We, therefore, find the impugned order to be in accordance with law and uphold the same. However, we find the penalty of Rs. 20,00,000/- imposed on the assessee is a little too harsh and we think that interests of justice would be met if the same is reduced to Rs. 1,00,000/- (Rupees one lakh) and we order accordingly. In the result Appeal No. E/43/06 is allowed and Appeal No. E/771/06 is dismissed except for the reduction in the quantum of penalty. (Order pronounced in open Court on 30-4-2007) - - TaxTMI - TMITax - Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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