TMI Blog2010 (12) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... hese are also cleared under exemption. Three of its finished products Lamivudine, Zidovudine and Nevirapine were exempt from payment of duty in terms of Notification No.6/2002 dt. 1.3.2002 as amended, during the material period February 2005 to March 2007. Vide the impugned order, the Commissioner disposed three show cause notices issued to the assessee and held that the assessee is liable to pay cenvat credit of Rs.12,32,28,157/- availed on inputs exclusively used in the manufacture of the above three exempted final products. The Commissioner confirmed demand of the above amount, applicable interest against APL and imposed penalty of Rs.10/- lakh on it. While confirming the demand, the Commissioner considered the fact that the assessee had already reversed credit to the tune of Rs.54,88,499/- relatable to inputs cleared as such. 2.The facts of the case in brief are as follows. The show cause notices had proposed to demand the cenvat credit relatable to the following : i. On the exclusive inputs used in the manufacture of exempted goods which were cleared on payment of 10% of the sale price of the exempted goods; ii. On the exclusive inputs removed as such; iii. On the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) (v) respectively of Sub Rule (6) of Rule 6 of CCR. The demand was contrary to the above provisions of law. The dispute was squarely covered by the judgment of the Honrable High Court of Bombay in Repro India Ltd. Vs. UOI and Another [ 2008 (88) RLT 481 (Bombay)] in favour of the assessee. The appellant relied on the following case laws which had held to the same effect. (i) Medispan Ltd. Vs.. CCE, Chennai - 2004 (178) ELT 848 (Tri.-Chennai) (ii) Jobelle Vs. CCE, Mumbai I - 2006 (203) ELT 627 (Tri.-Chennai) (iii) Punjab Stainless Steel Industries Ltd. Vs. CCE, Delhi - 2008 (226) ELT 587 (Tri.-Delhi) In holding that inputs used in the dutiable goods alone were eligible for taking credit, the Commissioner had relied on the judgment of the Honrable Andhra Pradesh High Court in WP No.16909/2006 dt 23.11.2007. This judgment was no more valid in view of the admission of fresh WP No.2747/2009 WPMP No.3532/2009 by the Honrable Andhra Pradesh High Court pursuant to the direction contained in Supreme Court order in SLP No.4969/2008. Moreover the vires of Explanation - III of Rule 6 (3) of CCR was pending before the Honrable Andhra Pradesh High Court. The credit involved on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst Schedule to the Central Excise Tariff Act, leviable under the Excise Act; (ii). to (xi) (6)Rule 6 of Cenvat Credit Rules 2004 reads as follows. RULE 6.Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. - (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2). [Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.] (2)?Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, [ *?*?* ], and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of such final products at the time of their clearance from the factory; or the manufacturer shall pay an amount equivalent to the CENAT credit attributable to inputs and input services used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or (b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to ten percent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory; (c) the provider of output service shall utilize credit only to extent of an amount not exceeding twenty per cent of the amount of service tax payable on taxable output service. Explanation I The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the CENVAT credit or otherwise. Explanation II If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Competitive Bidding in terms of [notification No.6/2002-Central Excise dated the 1st March, 2002 or Notification No.6/2006-Central Excise, dated the 1st March, 2006, as the case may be.] Though Rule 3 of CCR allows credit of duties specified in the sub-rule (1) and paid by a manufacturer, the scheme also places certain restrictions on the above right. As per Rule 6 (1) of CCR, credit shall not be allowed on such quantity of input or input service used in the manufacture of exempted goods or for provision of exempted services , except in circumstances specified in sub rule (2). As per sub rule (2), where a manufacturer or provider of output service avails of CENVAT credit and manufactures such final products or provides such output services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 6 shall be entitled to credit on exclusive inputs used for the production of exempted final products or provision of exempted services. However, in cases not covered by such exceptions, taking of credit on inputs by such assessees shall be irregular in view of the sub-rule (3) of Rule 6 of CCR. Such credit involved can be recovered along with interest as provided in Rule 14 of CCR. There is no justification to collect 10% of the sale price of exempted goods manufactured using exclusive inputs. There is no legal sanction for such recovery. In the case on hand, sub rules 1, 2, 3 and 4 shall not be applicable in the case of inputs relatable to excisable goods that are removed without payment of duty either to a hundred percent EOU or cleared for export under bond in terms of provisions of Central Excise Rules, 2002. As regards the credit involved in balance inputs and inputs contained in the finished goods in stock, we find that these demands are premature. The recovery of input credit involved in these cases shall be regulated in the manner we have indicated, namely, subject to sub-rule (6) of Rule 6 of CCR. 5.3 In its judgment in the case of CCE Vs. Drish Shoes L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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