2008 (6) TMI 154 - AT - Central Excise

Pet coke and furnace oil is first used for generation of steam which steam is further used for generation of electricity demand for not maintaining separate accounts as electricity is used in exempted final product(Iodised salt) since assessee has accepted to pay 8/10% of cost of either steam/electricity the requirement of Rule 6(3)(b) is fulfilled - once duty is paid on the soda ash used in exempted goods the reversal of the credit of duty paid on the inputs will not be required

Summary

Issues Involved:
1. Demand of Rs. 22,41,76,788/- for the period from 16-5-2005 to 31-3-2006 under Rule 6(3)(b) of Cenvat Credit Rules.
2. Demand of Rs. 2,77,15,038/- for the periods from 2001-02 to 2005-06.
3. Limitation issues regarding the extended period for demand.
4. Demand of reversal of Cenvat credit of Rs. 15,85,909/- on bags used for packing soda ash captively consumed.

Issue-wise Detailed Analysis:

1. Demand of Rs. 22,41,76,788/- for the period from 16-5-2005 to 31-3-2006:
The appellants argued that effective from 16-5-2005, they reversed the proportionate Cenvat credit attributable to the quantity of electricity used in the salt plant and other non-excisable purposes, making necessary entries in the Cenvat register and reflecting it in the monthly ER1 returns. They contended that the provisions of Rule 6 could not get attracted as they effectively took Cenvat credit only for the duty paid on furnace oil and pet coke used for making dutiable final products. The Tribunal found merit in the appellants' argument that the entire quantity of pet coke/furnace oil was used for the manufacture of steam/electricity, which was further used in exempted products. The Tribunal accepted the appellants' offer to pay duty on steam or electricity used within the factory, fulfilling the requirements of Rule 6(3)(b). The Tribunal relied on decisions in M/s. Texmo Inds. v. CCE and Tata Chemicals Ltd. v. CCE to support this view. The correctness of the duty paid on steam was to be verified by the original Adjudicating Authority.

2. Demand of Rs. 2,77,15,038/- for the periods from 2001-02 to 2005-06:
The appellants contested the demand on the ground that they had paid excise duty on the soda ash used for purification of brine for the entire period, arguing that once full excise duty is paid on the intermediate product, the question of demanding 8% or 10% on the price of exempted salt does not arise. They also reversed the credit of duty paid on inputs used in the manufacture of soda ash for exempted products. The Tribunal found that the extended period of limitation was rightly invoked as the appellants had not disclosed the use of soda ash in exempted products to the Department. The case was remanded to the original Adjudicating Authority to verify the correctness of the duty paid on soda ash used in exempted products, and the demand of Rs. 2,77,15,038/- was set aside.

3. Limitation Issues:
The appellants argued that the extended period of limitation was not applicable as all facts were known to the Department, and separate proceedings had been initiated to recover Cenvat credit on fuel used for generating electricity for salt manufacture. The Tribunal found that while the use of electricity in excisable and dutiable products was known to the Department, the use of soda ash in exempted products was not disclosed. Therefore, the extended period was rightly invoked.

4. Demand of Reversal of Cenvat Credit of Rs. 15,85,909/- on Bags Used for Packing Soda Ash Captively Consumed:
The appellants contended that since they had paid excise duty on the entire quantity of soda ash captively consumed for purification of brine, the Cenvat credit of the duty paid on the bags could not be denied. The Tribunal set aside the demand for Cenvat credit of Rs. 15,85,909/- on HDPE bags used for packing soda ash captively consumed.

Conclusion:
(a) The duty payment on steam made by the appellants was considered adequate under Rule 6, subject to verification by the original Adjudicating Authority.
(b) The duty demand of Rs. 2,77,15,038/- was set aside, with verification of the quantity of soda ash and duty payment required by the original Adjudicating Authority.
(c) The demand for Rs. 15,85,909/- on HDPE bags used for packing soda ash captively consumed was set aside.
The Adjudicating Authority was directed to re-examine the quantum of penalty in light of the reduced amount involved and provide the appellants an opportunity to present their points regarding the penalty and other issues.