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2009 (8) TMI 15

..... 1) merely highlights that principle. Sub-rule (1) covers all inputs, including fuel, whereas sub-rule (2) refers to non-fuel-inputs. Sub-rule (2) covers a situation where common cenvatted inputs are used in or in relation to manufacture of dutiable final product and exempted final product but the fuel- input is excluded from that sub-rule. However, exclusion of fuel- input vis-`-vis non-fuel-input would still fall in sub-rule (1) - It may be noted that litigation on interpretation of CENVAT Credit Rules has arisen on account of various conflicting decisions given by the various Benches of CESTAT, the reason being that the Rules have not been properly drafted. In the circumstances, we are of the view that in this batch of cases no penalty is leviable - 1308 OF 2008 - 17-8-2009 - S.H. KAPADIA and AFTAB, JJ. ALAM CIVIL APPEAL NO. 1308 OF 2008 WITH Civil Appeal No.1862 of 2006 Civil Appeal Nos. 5553 of 2009 - (Arising out of S.L.P. (C) No.4663 of 2009) Civil Appeal No.4169 of 2008 [Judgment per S. H. KAPADIA, J.] - Leave granted. 2. The short question which arises for determination in this batch of civil appeals is : whether the assessee(s) was required to reverse the CENVAT credit in .....

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..... hich it was held that in sub-rule (2) of Rule 6 of the 2002 Rules an exception stood carved out in case of inputs intended to be used as fuel and in such cases the necessity of maintenance of a separate account or denial of credit cannot be insisted upon. RELEVANT RULES 5. We hereinbelow reproduce relevant rules of the Central Excise Rules, 1944 and CENVAT Credit Rules, 2002 which read as follow: The Central Excise Rules, 1944 (as it stood on 29.8.2000) AA. CREDIT OF DUTY PAID ON EXCISABLE GOODS USED AS INPUTS OR CAPITAL GOODS RULE 57AD. Obligation of manufacturer of dutiable and exempted goods.- (1) CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2). (2)Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the .....

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..... 5; or (v) cleared for export under bond in terms of the provisions of rule 13. CENVAT Credit Rules, 2002 RULE 6. Obligation of manufacturer of dutiable and exempted goods.- 1. The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2). Provided the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12B 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 avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. 3. The manu .....

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..... le 57AD of the Central Excise Rules, 1944 is pari materia with sub-rules (1) and (2) of Rule 6 of the CENVAT Credit Rules, 2002. SUBMISSIONS 7. According to Shri Gourab Banerji, learned Addl. Solicitor General appearing for the Department, Rule 57AD(1)/Rule 6(1) is a general bar that CENVAT credit is not admissible on such quantity of inputs which are used in the manufacture of exempted goods. According to learned counsel, this bar is consistent with the basic idea of CENVAT scheme. Learned counsel submitted that on a bare reading of sub-rule (2) of Rule 6 of the 2002 Rules, it is clear that the said sub-rule imposes an obligation on the manufacturer when he is manufacturing dutiable and exempted goods to either maintain separate accounts qua inputs on dutiable and exempted goods or if he does not choose to do so he has to pay certain specified amount. In the alternative, learned counsel submitted that since LSHS was used for generation of electricity or steam it did not fall in the category of inputs used as fuel and consequently the assessee herein was required to maintain separate account or pay a certain specified amount under sub- rules (2) and (3) of Rule 6 of the 2002 Rules. .....

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..... -rule (1) is a general rule which provides, that except for the circumstances mentioned in sub-rule (2), CENVAT credit shall not be allowed on such quantity of inputs used in the manufacture of exempted goods and even though fuel-inputs are excluded from sub-rule (2), such inputs would still fall under sub- rule (1). 10. In our view, sub-rule (1) is plenary. It restates a principle, namely, that CENVAT credit for duty paid on inputs used in the manufacture of exempted final products is not allowable. This principle is in-built in the very structure of the CENVAT scheme. Sub-rule (1), therefore, merely highlights that principle. Sub-rule (1) covers all inputs, including fuel, whereas sub-rule (2) refers to non-fuel-inputs. Sub-rule (2) covers a situation where common cenvatted inputs are used in or in relation to manufacture of dutiable final product and exempted final product but the fuel- input is excluded from that sub-rule. However, exclusion of fuel- input vis-vis non-fuel-input would still fall in sub-rule (1). As stated above, sub-rule (1) is plenary, hence, it cannot be said that because sub-rule (2) is inapplicable to fuel-input(s), CENVAT credit is automatically available .....

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