TMI Blog2016 (10) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... ENVAT credit account. The Adjudicating Authority has not considered the fact that CENVAT credit to the extent of 6% of the value of exempted final product has already been reversed and the set off the same has granted which reveals that the demand to the extent of reversal 6% of the value of exempted goods twice taxing the appellants which not is permissible in law. M/s WCL availed CENVAT credit on the inputs for manufacturing of their final product before production of exemption certificate by M/s GMADA, the appellant has rightly availed CENVAT credit on inputs - demand of duty, interest and penalty not justified - appeal allowed - decided in favor of appellant. - Excise Appeal Nos. 50272-50273 of 2015 - Final Order No. 61128-61129/2016 - Dated:- 10-8-2016 - Shri Ashok Jindal, Member (Judicial) and Shri B. Ravichandran, Member (Technical) Shri Vikram Nankani and Vishal Agarwal, Advocates appellants Shri Atul Honda, Authorized Representative (DR) for the Respondent ORDER The appellants M/s Welspun Corporation Limited (WCL) and M/s Welspun Project Limited (WPL) are in appeal against the impugned order. 2. The brief facts of the case are that both the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, M/s WCL was not knowing that whether goods are required to be cleared under exemption certificate or not. In fact exemption was obtained only in the month of August 2012 and M/s WCL started manufacturing prior to that. In that circumstances, Rule 6 (3) of the Cenvat Credit Rules, 2004 is squarely applicable to the facts of the case and as per the said rule, if the appellant is not maintaining separate account of inputs used in manufacturing of dutiable as well as exempted final product, in that case the appellant is required to pay an amount of 6% of the value of exempted final product. It is their contention that they had complied with the provisions of Rule 6 (3) of the Cenvat Credit Rules, 2004, therefore, the proceedings are not to be initiated against the appellants. To support their contentions they relied on the decision namely CCE, Thane - I vs. Nicholas Piramal (India) Ltd. reported in 2009 (244) E.L.T. 321 (Bom.), Sobha Developers Ltd. vs. CCE, LTU, Bangalore reported in 2012 (276) E.L.T. 214 (Tri.Bang.) , Hetero Labs Ltd. vs. CCE, Hyderabad reported in 2005 (192) E.L.T. 716 (Tri. Bang.) , Brindavan Beverages Pvt. Ltd. vs. CCE, Meerut reported in 2014 (310 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and without payment of duty under exemption certificate and appellant is not maintaining separate account of inputs used for manufacturing of dutiable as well as final exempted product in that circumstances provisions of Rule 6 (3) of Cenvat Credit Rules, 2004 are applicable to the facts of the case, which the appellant has complied with by reversing 6% of the value of final exempted goods at the time of their clearance. 9 . The sole contention of the Revenue is that till 05/11/12 the appellant were manufacturing only and only exempted goods. The said contention is not tenable, as on 05/11/12, itself the appellant has cleared dutiable goods. If the appellant has not manufactured the dutiable goods prior to 05/11/02, in that circumstances how the goods were cleared on 05/11/12 on payment of duty. Therefore, the Revenue has failed to appreciate the fact that inputs are available for credit at the time of start of manufacture of the goods. There is a great difference between manufacture and their clearance. In this case manufacturing process started much earlier before the date when the exemption certificate was obtained by M/s GMADA. Prior to obtaining the exemption certificate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts for receipt, consumption and inventory of the inputs. Rule 6(3) then provides that if separate accounts are not maintained then the amount as set out thus has to be paid by a manufacturer who does not maintain accounts. 19. It was submitted on behalf of the assessee that sub-rule (3) of Rule 6, is attracted only when the assessee does not want to comply with sub-rule (1) of Rule 6 by reversing the credit. In other words, it is submitted that it is only when the assessee wants an exemption as also credit that the assessee has to comply with Rule 6(3)(b). In our opinion, such a construction militates against Rule 6(1) and Rule 6(3) (b) as also Rule 6(2). The rule has to be read together to understand the object of the Rule. Once a manufacturer, manufactures from common inputs two final products, one dutiable and the other exempted. Rule 6(2) would be attracted and on failure to maintain separate records, Rule 6(3) would apply. Rule 6(1) in such an event would result in denying to the manufacture Cenvat credit, Once the inputs are used in the manufacture of exempted goods irrespective whether such inputs are used in the manufacture of dutiable goods. Such manufacturer can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are allowed to be provided to SEZ units/developer, subject to conditions which are required to be fulfilled by SEZ developer/unit. This is similar to erstwhile Chapter X Procedure in Central Excise Rules, 1944 which was a subject-matter in the case of Bajaj Tempo Ltd. (supra) which considered the Notification No. 217/86, dated 2-4-1986. In Sterlite Industries (I) Ltd. case (supra) the Tribunal was considering the provisions of Notification No. 214/86 in which the goods are allowed to be cleared without payment of duty by job worker subject to conditions which are required to be fulfilled by the raw material supplier. The relevant paragraphs of both the judgments are reproduced below for better appreciation : Para 7.2 to 7.6 of judgment in Bajaj Tempo Ltd. (supra) - 7.2 Under the Modvat scheme, credit of duty paid on notified inputs is to be given for payment of duty on the notified final products, if such inputs are used in or in relation to the manufacture of final products and such inputs are not hit by explanation to Rule 57A. This same concept is clearly discernible in Notification 217/86. This notification is mainly intended to avert payment of duty at each intermedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to take away the benefit of averting duty payment at each stage in the line of production. Hence, a mechanical application of Rule 57C, is to be avoided, since it destroys the very benefit, which is otherwise available under the scheme right from stage one to the final stage. In the case of disintegrated production, credit is available from stage one by paying duty at each finished stage and taking credit of such duty in the other units down the line, whereas in the case of vertically integrated production units the same benefit is sought to be conferred by averting payment of duty at each stage and postponing the availment of credit to the final stage of manufacture. This is how, we could interpret the provisions of Rule 57C in the context of Notification 217/86. Any other interpretation will frustrate the object of the scheme, apart from leading to discrimination between vertically integrated production line and laterally disintegrated production amongst different units. Para 3 4 of the judgment in Sterlite Industries (I) Ltd. (supra) - 3. We are also in agreement with the appellant s contention that Rule 57C debars taking of credit in respect of the inputs used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of duty by observing that since no duty was paid on the part at the time of clearance, Rule 57C will apply and no Modvat credit would be admissible. However, the said decision was subsequently reversed by the Supreme Court as reported in Escort v. C.C Ex. [2004 (171) E.L.T. 145 (S.C.)]. For appreciation, we reproduce paragraphs 8 9 of the said decision. 8. It is to be seen that the whole purpose of the Notification and the Rules is to streamlines the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rule 57D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where intermediate product comes into existence, even though no duty has been chargeable to Nil rate of duty, credit would still be allowed so long as duty is paid on the final product. 9. In cases of manufacturers like the Appellants the final product is the tractor. The intermediate product would be parts which are manufactured for being used in the tractor. In such a case the parts would not be the final product. Thus Rule 57C would ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of dutiable as well as exempted final products, in such a situation just because at the time of receipt, he uses the capital goods for manufacture of exempted final product and subsequently he switches over to the manufacture off dutiable final product, the capital goods Cenvat credit cannot be denied. When at the time of receipt of capital goods, capable of use in manufacture of dutiable as well as exempted final products there is evidence to show that the manufacturer had intention, to use them for manufacture of dutiable as well as exempted final product, the eligibility of the capital goods for Cenvat credit cannot depend upon the order in which the same are used - whether first for the manufacture of exempted final products or for the manufacture of dutiable final product . Further, in the case of Hindustan Zinc Ltd. vs. Union of India (supra), the Hon'ble Rajasthan High court has observed as under:- 27. It appears that the combined effect of Sub-Rule (9), sub-Rule (1) of Rule 57CC and the substantive scheme of availing Modvat credit in respect of inputs, the decisive date for the assessee s entitlement to Modvat credit is not postponed to the date of clearance. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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