2008 (3) TMI 550 - AT - Central Excise

Reversal of Cenvat/Modvat credit - Held that - The requirement of having to reverse credit taken on any inputs when separate accounts are not maintained ceases once the assessee reverses the entire credit availed - the requirement to pay a percentage of the sale price of the exempted goods in terms of Rule 57CC - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availing Modvat credit on common inputs for dutiable and exempted products.
2. Demand for recovery of 8% of the sale price on exempted products.
3. Requirement to maintain separate accounts for common inputs.
4. Applicability of penalty under Rule 173Q of the CER.
5. Interpretation of Rule 57CC in relation to reversing credit on common inputs.

Analysis:
1. The case involved M/s. Pepsico Holdings India Private Limited (PEPSI) availing Modvat credit on common inputs for both dutiable aerated water and exempted soft drink SLICE. The original authority demanded recovery of over Rs. 18 lakhs towards 8% of the sale price of exempted final products due to the lack of separate accounts for common inputs, except sugar. The authority also imposed a penalty under Rule 173Q of the CER.

2. PEPSI appealed against the demand for recovery of 8% of the sale price on exempted products. The lower authorities held that reversing the credit on common inputs after clearance did not rectify the failure to maintain separate accounts as required by Rule 57CC. The Commissioner (Appeals) upheld this decision, citing the Apex Court judgment in Chandrapur Magnet Wires (P) Ltd. v. Collector. The Commissioner ruled that once credit was taken, 8% of the sale price of exempted goods had to be paid.

3. In their defense, PEPSI argued that reversing the entire credit on common inputs should negate the need to pay any amount under Rule 57CC. They referenced a judgment by the High Court of Judicature at Allahabad and a Tribunal decision in CCE, Mumbai-VI v. Philips India Ltd. to support their position. They contended that penal consequences for using common inputs only arose from taking credit on them.

4. The Tribunal carefully considered the arguments presented. It was noted that once the entire credit on common inputs was reversed, the requirement to maintain separate accounts ceased. The Tribunal agreed with the interpretation from Hello Minerals Water (P) Ltd. that the benefit of exemption was available even if the credit was reversed post-product removal. Therefore, the Tribunal vacated the impugned order and allowed PEPSI's appeal.

In conclusion, the Tribunal ruled in favor of PEPSI, emphasizing that reversing the credit on common inputs eliminated the obligation to pay 8% of the sale price of exempted goods under Rule 57CC.