2007 (10) TMI 185 - AT - Central Excise

Not maintained separate account in respect of the inputs used in their dutiable products and exempted products - appellant had reversed the entire credit along with interest attributable to the exempted products held that appellants had not taken any credit at all in view of the reversal - Rule 6 would not be applicable - appellant is not required to pay 8% or 10% of the sale value of the ex empted products appeal allowed

Summary

Issues:
- Applicability of Rule 6 of the Cenvat Credit Rules on manufacturers of Rice Bran Oil and by-products.
- Whether the appellants are liable to pay 8%/10% of the sale value of exempted goods.
- Reversal of Cenvat credit and its impact on the applicability of Rule 6.

Analysis:

Issue 1: Applicability of Rule 6
The dispute in this case revolves around the applicability of Rule 6 of the Cenvat Credit Rules on manufacturers of Rice Bran Oil and its by-products, acid oil, and wax. The Revenue contended that Rule 6 mandates payment of 8%/10% of the sale value of exempted goods. The appellants argued that Rule 6 does not apply to by-products. The department relied on the decision in Rallies India Ltd. v. CCE, Salem, stating that Rule 6 applies when one of the final products is exempted, regardless of intention. The appellants cited rulings affirming that Rule 57CC (similar to Rule 6) does not apply to by-products, including decisions upheld by the Supreme Court. The Tribunal noted conflicting interpretations but ultimately upheld the applicability of Rule 6 based on the Rallies case.

Issue 2: Liability to pay 8%/10% of sale value
The main contention was whether the appellants were liable to pay 8%/10% of the sale value of exempted goods. The Revenue argued that the appellants must pay as per Rule 6. The appellants reversed the entire credit attributable to exempted products, citing the Supreme Court's decision in Chandrapur Magnet Wires case that reversal of credit equates to not taking the credit at all. The Tribunal, considering the reversal of credit and the disproportionate demand compared to the credit amount, held that if no credit was taken due to reversal, Rule 6 would not apply, thus relieving the appellants from the obligation to pay 8%/10% of the sale value of exempted products.

Issue 3: Impact of Circular 591/28/2001-CX
The appellants also relied on Circular 591/28/2001-CX, which clarified the recovery of amounts not paid under Rule 6. The Circular emphasized that credit is admissible only if duty is paid on final products and recovery is warranted if the manufacturer fails to fulfill specific requirements. The Tribunal's decision considered the Circular in conjunction with the reversal of credit, further supporting the appellants' position that Rule 6 did not apply due to the absence of credit taken on inputs used in exempted products.

In conclusion, the Tribunal set aside the impugned order, ruling in favor of the appellants based on the reversal of credit and the non-applicability of Rule 6 in their specific circumstances.