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2013 (9) TMI 91 - AT - Central ExciseCENVAT Credit - Separate Accounts - Duty on Exempted Goods - Assesses were availing the Cenvat credit of Service Tax paid on the input services such as GTA services and Customs House Agents Service - Department was of the view that though common Cenvat credit availed input and input services were being used in the manufacture of dutiable as well as exempted final products, the appellants were not maintaining separate account and inventory of the inputs meant for dutiable and exempted final products and hence in accordance with the provisions of Rule 6(3)(b)/6(3)(i) of Cenvat Credit Rules, 2004, the appellants were liable to pay an amount equal to 10% of value of the exempted goods - Held that - During the period no credit of additional customs duty was taken and service tax credit taken initially was subsequently reversed - the provisions of Rule 6(3)(b)/6(3)(i) read with Rule 6(2) will not apply and the demand under Rule 6(3)(b) would not be sustainable - The Appellants were not taking Cenvat credit of additional customs duty on Zinc Skimming in proportion to the quantity of the Zinc Ash part of the Zinc Skimmings used in the manufacture of the exempted product Zinc Sulphate, the provisions of Rule 6(3) would not be applicable. Even if the manufacturer wanted to fulfil the condition of Rule 6(2), he cannot do so, as it was impossible - it would be impossible for the Appellant to maintain separate account and inventory of Zinc Skimming meant for use in the manufacture of Zinc Sulphate and the Zinc Skimming meant for use in the manufacture of Zinc Ingots - Lex Non Cogit ad impossibilia - Law does not compel a person to do that which was impossible, was a well settled legal principle applied even in taxation matters. Prima facie it was impossible for the Appellants to maintain separate account and inventory of Zinc Skimming used for manufacture of Zinc Ingots and Zinc Sulphate (Agriculture grade) for the reason that one final product was the by product of the other, Rule 6(3)(b)/6(3)(i) read with Rule 6(2) of Cenvat Credit Rules, cannot be invoked - the Appellants were following the next best option - determining the proportionate Cenvat credit attributable to Zinc ash component of the Zinc Skimming and not availing the same. The requirement of pre-deposit of the amount demanded under Rule 6(3)(b)/6(3)(i), of Cenvat Credit Rules, 2004, interest and penalty was waived for hearing of the appeals and the recovery was stayed till the disposal of the appeal - Stay Applications were allowed.
Issues:
- Interpretation of Rule 6(3)(b)/6(3)(i) of Cenvat Credit Rules, 2004 - Maintaining separate account and inventory of inputs for dutiable and exempted final products - Application of legal maxim Lex Non Cogit ad impossibilia in taxation matters Analysis: Interpretation of Rule 6(3)(b)/6(3)(i) of Cenvat Credit Rules, 2004: The case involved the appellants, manufacturers of Zinc Sulphate and Zinc Ingots, facing duty demands based on alleged non-compliance with Rule 6(3)(b)/6(3)(i) of Cenvat Credit Rules, 2004. The Department contended that the appellants failed to maintain separate accounts for inputs used in manufacturing dutiable and exempted products, leading to duty demands totaling Rs. 83,65,483/- and Rs. 76,66,527/- against the appellants. However, the Tribunal found that during a specific period, no credit was taken for additional customs duty and service tax, rendering the demands unsustainable for that period. Maintaining separate account and inventory of inputs for dutiable and exempted final products: The Tribunal examined the requirement under Rule 6(2) of Cenvat Credit Rules to maintain separate accounts for inputs used in dutiable and exempted products. It was noted that the manufacturing process for Zinc Sulphate and Zinc Ingots involved a common input, making it impossible to segregate the inputs. The legal maxim Lex Non Cogit ad impossibilia was invoked, emphasizing that the law does not compel the impossible. Citing precedents, the Tribunal highlighted instances where maintaining separate accounts was deemed impracticable, leading to waiver of duty demands. Application of legal maxim Lex Non Cogit ad impossibilia in taxation matters: The Tribunal extensively discussed the application of the legal maxim Lex Non Cogit ad impossibilia in taxation matters. Referring to judicial precedents, the Tribunal emphasized that when compliance with legal requirements is impossible due to the nature of manufacturing processes, the law should not compel such impracticable actions. The Tribunal cited cases where the principle was upheld, leading to decisions favoring the appellants due to the impossibility of maintaining separate accounts for dutiable and exempted products. In conclusion, the Tribunal granted a waiver of the pre-deposit amount demanded under Rule 6(3)(b)/6(3)(i), interest, and penalties for the hearing of the appeals. The recovery was stayed until the appeal's disposal, considering the impossibility of maintaining separate accounts and the appellants' compliance with alternative methods to determine Cenvat credit.
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