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2022 (11) TMI 644 - AT - Central ExciseReversal of CENVAT Credit - Valuation of exempted goods - inputs/input services used in manufacture of the ammonia and to the extent that ammonia was used to further manufacture urea which was cleared under the exemption notification - HELD THAT:- Laws of taxation have to be strictly construed regardless of the consequences. It is true that by reckoning the value of urea which is heavily subsidized, the amount of ineligible Cenvat credit to be reversed is reduced substantially. If the value of the intermediate products viz. ammonia is reckoned the amount of ineligible Cenvat credit will be much higher. An illustration will make it clear. If the assessee had availed Cenvat credit of Rs. 1000/- and manufactured only ammonia and cleared it on payment of duty it can avail the entire Rs. 1000/- as Cenvat credit. On the other hand, if the assessee had converted the entire amount of ammonia into urea it would not have been eligible to any Cenvat credit because the urea is exempted. While applying the formula under Rule 6(3A), the subsidized urea prices would result in the amount of ineligible Cenvat credit going down substantially to the extent sale 80%. Therefore, instead of Rs. 500/- being ineligible, the appellant will be ineligible to about Rs. 100/- as Cenvat credit as per the formula. The remaining Rs. 400/- which will logically be the credit on inputs/input services which have gone into the manufacture of ammonia which finally got converted into urea will still be available to the appellant and it can use this credit for clearing other dutiable goods. However, this inherent unfairness/distortion created by the formula given in Rule 6(3A) should make no difference. An intelligent asessee, who manufactures urea can, by selling a small percentage of the intermediate product ammonia as such on payment of duty avail Cenvat credit on all the inputs and reverse a small percentage of it only. Such a tax planning by the assessee is perfectly within the frame work of law. The formula under Rule 6(3A) only requires the value of the exempted goods removed to be reckoned and not the value of the intermediate goods. The exempted good in this case is the urea. Its value is not in dispute. The 1% concessional rate of duty (without Cenvat credit) paid by the appellant is also on such value and not on the value without the subsidy. The value of urea does not change for calculation of Cenvat to be reversed under Rule 6(3A). Therefore, the appellant has correctly reversed proportionate amount of Cenvat credit reckoning the value of the urea removed instead of reckoning the intermediate product ammonia which has gone into the manufacture of such urea. The impugned order cannot be sustained and needs to be set aside - Appeal allowed.
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