TMI Blog2009 (5) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise, Delhi-IV, Faridabad (hereinafter referred to as the Revenue). 2.1 The facts in brief are that the applicant is engaged in the manufacture of a number of bulk drugs. All the bulk drugs except Quinine manufactured by the applicant were dutiable. Acting on an intelligence that applicant was using common inputs in the manufacture of dutiable and exempted products but was not maintaining separate records in respect of the exempted goods, Central Excise Officers of Anti-Evasion Branch, Faridabad initiated investigations by searching the factory premises of the applicant-company on 25-10-2007 and resuming certain records. 2.2 During investigations, Shri S.M. Bhatnagar, Store Incharge of the applicant-company in his statement recorded under Section 14 of the Act, inter alia stated that he was working as storekeeper for the last 11 years; that it was his responsibility to receive raw material and issue the same to different plants; that he sent the purchase bills to Shri Shyambir with instructions to avail Cenvat credit; that he reported to Shri Sunil Malik, G.M. Operations; that his assistants received the raw material at the gate and weighed the same on the weighing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he also gave directions to not to take Cenvat credit on those inputs which was used in the manufacture of quinine and sold in the domestic market. 2.4 In his subsequent statements Shri Sunil Malik admitted that certain invoices had been entered in the stock registers meant for production of final products other than quinine and the goods corresponding to them were used in the manufacture of quinine that they had used certain quantities of raw material on which Cenvat credit was taken in the manufacture of quinine; and that there was no difference in the quality of quinine sold in the domestic market and removed for export and the process of manufacture for both was the same. He also submitted a chart prepared on the basis of calculations based on record showing the credit taken on the inputs used in the manufacture of quinine removed for domestic consumption during the periods from 2004-05 to 2007-08 (up to October, 2007). He further stated that they have not maintained separate accounts for 2003-04 and that they started maintaining separate records from 2004-05 onwards. 2.5 The investigation revealed that register bearing Sl. No. 32 has the title chemical, solvent, packing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dated 8-5-2008 was issued to the applicant and co-applicants 1 and 2 whereby an amount of Rs. 2,40,23,173/- was demanded, which was 8%/10% of the value of exempted goods removed by them for home consumption, on the ground that they were not maintaining separate accounts of the inputs used in the manufacture of dutiable and exempted finished products. Interest and penal provisions were also invoked in the SCN. 3. The applicant-company in its settlement application has, inter alia, submitted that : (i) The facts as brought forth in the SCN are incomplete and, therefore, do not present a correct picture in so far as the maintenance of record was concerned. The records as were being maintained enable clear quantification of inputs used in the manufacture of exempted goods as well as the quantum of credit, wherever taken, in respect of such inputs. (ii) In order to ensure proper appreciation of the facts pertaining to the maintenance of the records, the inputs involved in the manufacture of exempted goods i.e. quinine and its derivatives are categorized as solvents and packing material. The solvents were accounted for in a separate stock register from 2004-05 onwards. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect is neutralized by payment of 8%/10% of the value of the exempted goods. (v) Thus, Rule 6(2) and Rule 6(3) constitute the machinery or procedural provisions for fulfilling the objective of Rule 6(1), which is to ensure that the Cenvat credit is not taken for the inputs used in the manufacture of exempted goods. The introduction of Rule 6(3)(ii) in the Cenvat Credit Rules, 2004, which provides for the payment of credit taken in respect of goods and services utilized in the manufacture of exempted goods computed on pro rata basis, supports this contention. (vi) The fundamental rule of construction regarding a machinery provision is that they should not be subjected to a rigorous construction but should be interpreted in a way that makes the machinery workable. They are to be construed in a manner that would advance the object behind the provisions. In interpreting the machinery sections an undue harsh interpretation against the assessee is avoided and the benefit of the language is to be given to the assessee rather than the revenue. The machinery provisions cannot be construed to override the substantive provisions they are intending to enforce. In this regard the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the credit incorrectly taken is deniable and recoverable. This is apparent from the fact that there are no machinery provisions for the recovery of amount payable in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. In this regard the following decisions of the Tribunal are relevant and are being relied upon. (a) CCE, Aurangabad v. Terna SSK Ltd. - 2007 (209) E.L.T. 194 (Tri). A copy of the decision is enclosed and marked as Annexure-10. In the case it was held that : ...The issue is reversal of 8% amount under Rule 57CC which is neither duty nor credit of Modvat. There is no machinery provision under Rule 57CC to affect the recovery of such amount. The assessee has reversed the same and Revenue should accept the same as there is no dispute on quantification. The reversals show the bona fide of the assessee . (b) CCE, Hyderabad-IV v. Jay Engineering Works (Unit SF II) - 2006 (193) E.L.T. 244 (Tri). A copy of the decision is enclosed and marked as Annexure-11. In this case it was held that : ...Admittedly, in the present case, the period was earlier to the introduction of Rule 6 directing for reversal of credit of 8%. During the relevant period, the Board s Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge of liability. In this regard the following decisions are relevant and are being relied upon (a) Satyakala Agro Oil Products Ltd. v. CCE, Guntur - 2008 (223) E.L.T. 441 (Tri). A copy of the decision is enclosed and marked as Annexure-15. In this case it was held that : ...In the present case, it is not in dispute that the appellant had reversed the entire credit along with interest attributable to the exempted products. Therefore, following the ratio of the Chandrapur Magnet wires case (supra), we hold that the appellants had not taken any credit at all in view of the reversal. If it is held that the appellants had not taken any credit of the inputs used in the exempted product, then rude 6 would not be applicable. If Rule 6 is not applicable, the appellant is not required to pay 8% or 10% of the sale value of the exempted products. In view of the above observations, we set aside the impugned order and allow the appeal with consequential relief. (b) CCE, Hyderabad-IV v. Jay Engineering Works (Unit SF II) - 2006 (193) E.L.T. 244 (Annexure-11). In this case it was held that : ...in the present case, the period was earlier to the introduction of Rule 6 directing for rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken accordingly . 4. The applicant has given details of manner in which it has computed its liability to pay duty. They have given year-wise details of the inputs consumed by them in the manufacture of exempted goods and according to them the excess credit taken by them works out as under: (i) The details in respect of solvents for the period 2003-04 The details with regard to incorrect availment of credit of duty paid on toluene, activated carbon, hyflo and acetone are enclosed and marked as Annexure-17A, Annexure-17B, Annexure-17C and Annexure-17D respectively. No credit was taken in respect of ammonia solution and ammonia gas cylinder in this period. These details indicate that: (a) 2,09,752.040 kgs. toluene were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 2,15,335/-. (b) 14318.50 kgs. of activated carbon were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Nil. (c) 3500.520 kgs. of hyflo were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 2,558/-. (d) 28028.195 kgs. of acetone were used in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1,80,510 kgs. of Toluene was purchased 1,55,915 kgs. was recorded in the stock register meant for exempted goods and out of this quantity the credit was taken only in respect of one invoice for the purchase of 10,195 kgs. The credit thus wrongly taken was only Rs. 69,316/-. (b) In the period 20,514 kgs. of Activated Carbon was purchased, 16,954 kgs. was recorded in the stock register meant for exempted goods and out of this quantity the credit was taken only in respect of one invoice for the purchase of 105 kgs. The credit thus wrongly taken was only Rs. 1,927/-. (c) In the period 17,185.700 kgs. of Hyflo was purchased, 5130.200 kgs. was recorded in the stock register meant for exempted goods. No credit was taken in respect of the goods recorded in the stock register meant for exempted goods. (d) In the period 83,937 kgs. of Acetone was purchased, 47,885 kgs. was recorded in the stock register meant for exempted goods and out of this quantity the credit was taken only in respect of two invoices for the purchase of 19,880 kgs. The credit thus wrongly taken was Rs. 1,05,376/-. (e) In the period 1,79,622 kgs. of Ammonia Solution was purchased, 1,57,447 kgs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3108.76 kgs. of polybags 24 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 28,526/-. (j) 473.641 kgs. of LDPE bag 27 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 3,449/-. (k) 54.672 kgs. of Polybag 30 x 60 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 521/-. (l) 5.941 kgs. of Printed Polybag 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 43/-. (m) 7.84 kgs. of Printed Polybag 24 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 60/-. (n) 205.773 kgs. of Printed Polybag 27 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,511/-. (v) The details in respect of the solvents for the period 2005-06 The details in respect of Toluene, Activate Carbon, Hyflo, Acetone, Ammonia Solution and Ammonia Gas Cylinder are enclosed as Annexure-21A, Annexure-21B, Annexure-21C, Annexure-21D, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of exempted goods and credit involved in respect thereof is Rs. 702/-. (c) 0.65 kgs. of polybags 9 x 12 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 4/-. (d) 83,282 kgs. of polybags 12 x 15 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,293/-. (e) 3.294 kgs. of polybags 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 41/-. (f) 1793.770 kgs. of polybags 24 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 20,834/-. (g) 299.121 kgs. of LDPE bag 27 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 4,432/-. (h) 2.574 of Printed Polybag 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 19/-. (i) 0.28 kgs. of Printed Polybag 24 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 3/-. (j) 136.229 kgs. of Prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- (a) 572 drums of 65 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 15,531/-. (b) 42 drums of 50 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,685/-. (c) 18 drums of 30 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 529/-. (d) 41.159 kgs. of polybags 12 x 15 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 379/-. (e) 2.584 kgs. of polybags 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 35/-. (f) 904.390 kgs. of polybags 24 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 8,387/-. (g) 215.503 kgs. of LDPE bag 27 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,892/-. (h) 1.929 kgs. of Printed Polybag 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Annexure-26H, Annexure-26-I, Annexure-26J and Annexure-26K respectively. These details indicate that :- (a) 461 drums of 65 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 13,261/-. (b) 3 drums of 50 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 119/-. (c) 3 drums of 30 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 88/-. (d) 14.984 kgs. of polybags 12 x 15 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Nil. (e) 17.886 kgs. of polybags 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 4/-. (f) 983.150 kgs. of polybags 24 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 5,969/-. (g) 146.107 kgs. of LDPE bag 27 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 806/-. (h) 6.322 kgs. of Polybag 30 x 60 were used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the period in question they took credit in respect of inputs used in the manufacture of quinine and other derivatives thereof, which amounted to Rs. 7,18,726/-. This amount is inclusive of the credit of Education Cess and secondary and higher Education Cess. This credit has been unlawfully taken by them and was therefore not available for discharge of central excise duty on the finished dutiable goods thereby leading to the non-payment of central excise duty to the extent of credit involved. 7. As regards the interest liability, the applicant-company has submitted that they are liable to pay interest on the credit incorrectly taken. The rate of interest for the period from 1-4-2003 to 11-9-2003 is 15% and for the period thereafter the interest is payable at the rate of 13%. The interest calculation for the periods 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 (up to 25-10-2007) is enclosed and marked as Annexure-29A, Annexure-29B, Annexure-29C, Annexure-29D, Annexure-29E respectively to the settlement application. The interest has been calculated at the rate of 15% for the entire period if the credit was taken prior to 12-9-2003. The statement of aggregate of interest l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute itself provides for reversal of 10% of the amount of inputs. The Revenue has also placed reliance on the decision in the matter of Ghodawat Foods International Pvt. Ltd. v. CCE., Pune [2008 (229) E.L.T. 261 (Tri.-Mumbai)] wherein the Tribunal has held as under :- It is also undisputed that the appellant had not maintained separate inventory for consumption of the inputs in the manufacture of exempted products. This would indicate that the Cenvat credit availed on the HDPE granules and the sheets, which were used for manufacturing of exempted products, the appellant was ineligible to avail the credit. Provisions of Rule 6(1), 6(2), 6(3)(b) and the Cenvat Credit Rules specifically envisaged this account of situation and were enshrined in the statute so that the appellants can avail the benefit of Cenvat credit if he maintains a separate books of account. Having not done so, the appellant s eligibility to avail Cenvat credit on these inputs can be questioned. Instead of seeking reversal of Credit on inputs, which were used in the exempted products, statute itself provides for reversal of 10% of the amount of the exempted products cleared from the factory manufactured by usin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on 28-4-2009. Shri S.K. Pahwa, ld. Advocate for the applicant and co-applicants explained the facts of the case stating that the applicant-company manufactures both dutiable and exempted goods and used some common inputs in their manufacture on which they had taken Cenvat credit. According to him while the Revenue had demanded Rs. 2,40,23,173/- their liability was only Rs. 7,18,726/-, since they maintained accounts which indicated the quantity of inputs used in the production of exempted goods. Although the records were common but from the records the quantity of inputs used in dutiable and exempted goods could be segregated. Under the heading Product Batch No. , they had indicated the product for which the inputs were issued. This satisfies the requirements of Rule 6 of the Cenvat Credit Rules. In support of his contention, ld. Advocate relied upon the decision reported at 2008 (227) E.L.T. 110 (Tri.-Chennai) and 2008 (223) E.L.T. 65 (Tri.-Mumbai) = 2007 (7) S.T.R. 303 (Tri.-Mum.), which had held that if the inputs could be segregated at the time of issue for manufacture of final products and credit taken was reversed on quantity of inputs issued for manufacture of exempted pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit was available even if the credit was reversed subsequent to removal of final products. This ratio holds good also in respect of the requirement to pay a percentage of the sale price of the exempted goods in terms of Rule 57CC. In the circumstances, we vacate the impugned order and allow the appeal filed by M/s. PEPSI. 16. Ld. Advocate further submitted that they had also exported certain quantities of goods manufactured by them, for which they do not have to reverse the Cenvat credit taken on the inputs. Considering both the quantity and value of the goods exported, they have worked out the proportionate amount of Cenvat Credit and agree to reverse the higher amount of Cenvat credit on the basis of value of exports. He further submitted that a procedural law cannot overshadow the substantive law relying upon the Supreme Court s decision reported at 2008 (226) E.L.T. 20 (S.C.) and argued that where the amount of credit attributable to inputs used in the manufacture of exempted goods could be calculated, one cannot be asked to pay 8/10% of the value of the goods. In the present case the total amount of Cenvat credit availed on the common inputs used in the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may result in undue hardship not intended by law and create obstructions in the way of trade and industry. If a law can reasonably be seen and interpreted in a manner that it facilitates the trade and industry without detriment to the legitimate interest of the Revenue and if it were apt in the given situation, the Bench would like to do so. In the present case sub-rule (1) of Rule 6 of the Cenvat Credit Rules states that Cenvat credit is not admissible on inputs used in the manufacture of exempted goods. Legitimate interest of the Revenue is that in case of exempted goods, credit on inputs should not be available. Sub-rule (2), requires separate accounts to be maintained if common inputs are used in the manufacture of both exempted and dutiable goods. Sub-rule (3) covers the situation where the assessee does not want to maintain separate accounts and gives him option of the manner in which he can discharge his duty liability and one of the options is to pay a percentage of the value of the exempted goods. In the eyes of the Bench, this sub-rule does not authorize collection of a new levy as a percentage of the value of the exempted goods in the present case where the records as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- is ordered to be appropriated from the aforesaid amount of Rs. 35 lakhs. After adjusting the amount of duty, interest and penalty payable by the applicant-company from the aforesaid Rs. 35 lakhs, the Bench orders reversal/refund of the balance amount in the Cenvat credit/PLA, if any. Prosecution : - Subject to the payment of the aforesaid amounts by the applicant, the Bench grants immunity to the applicant and the co-applicants from prosecution under the Central Excise Act, 1944 and the Rules made thereunder as applicable in so far as this case is concerned. 20. The above immunities to the applicant and co-applicants are granted under sub-section (1) of Section 32K of the Act. Their attention is also drawn to the provisions of sub-sections (2) and (3) of Section 32K ibid. 21. This order shall be void and immunities withdrawn if the Bench finds, at any time, that the applicants had concealed any particular material to the settlement or had given false evidence or had obtained this order by fraud or misrepresentation of facts. Attention is drawn to sub-section (8) of Section 32F and sub-sections (2) and (3) of Section 32K of the Act. 22. All concerned may be informed acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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