C.L. Mahar, Technical Member.
1. The brief facts of the matter are that the appellants are engaged in manufacture of leaf springs falling under Chapter 73 of the 1st Schedule to the Central Excise Tariff Act, 1985. The appellants are engaged in supply of leaf springs to various manufacturers of the motor vehicles, such as, Ashok Leyland, Tata Motors etc. During 2014, the appellants got an order from the Government of India’s Defence Equipment making factory namely vehicles factory Jabalpur. The order for supply of leafsprings to the appellant was awarded after they have won a tender which was published by the Defence vehicles factory, Jabalpur. As an a established practice, the appellant have been availing Cenvat credit on the inputs, input services and on capital goods as per the provisions of Cenvat Credit Rules, 2004.
2. The Department has entertained a doubt that the appellants were clearing the leaf springs to the Jabalpur vehicles factory by availing the benefit of exemption Notification No. 64/95-CX, however, they have not followed the laid down procedure as provided under Rule 6 of Cenvat Credit Rules. The department have believed that the appellant have availed the Cenvat credit on all the raw materials, inputs, components, which were used by them in manufacture of both dutiable finished goods as well as exempted finished goods. It is contended by the Department that on the clearances affected under Notification No. 64/95, the appellants should have reversed Cenvat credit @ 6% of the value of the exempted goods as no separate accounts of Cenvat credit availed on exempted and dutiable goods have been maintained by them. Accordingly, two show cause notices one dated 03/06/2015 demanding reversal of the Cenvat credit of Rs. 1,15,34,488/- and second show cause notice dated 10/03/2016 demanding reversal of Cenvat credit of Rs. 27,80,175/- came to be issued which have been adjudicated by learned Commissioner, Ujjain vide this common order-in-original No. 50-51/COMMR/CEX/UJN/2017 dated 22/03/2017. The appellants are before us against the above-mentioned order-inoriginal.
3. The learned Advocate appearing for the appellant have submitted that the provisions of Rule 6 of Cenvat Credit Rules, 2004 are not applicable in the case of the appellant as the goods have been cleared under Notification 65/95-CE which provides conditional exemption benefit from payment of central excise duty and exemption is available to the recipient of the goods and not to the manufacture, therefore, the applicability of Rule 6 of Cenvat Credit Rules is not there in their case. The learned Advocate has assailed the confirmation of Cenvat credit on the ground that the exemption under Notification 65/95-CX. is akin to the provisions of Chapter X in the erstwhile rules wherein the duty on otherwise excisable goods is remitted when the same are put forth to a specified use and the procedure set out in the said rule is followed. It has also been added that for making the provisions of Rule 6 of Cenvat Credit Rules applicable, there should be two different final products being manufactured by the same manufacturer, wherein one of the final product is cleared on payment of duty and other product is cleared without payment of duty. In such circumstances, the Rule 6 of Cenvat Credit Rules becomes applicable and the appellant would have been liable to reverse back 6% of the value of clearances from the Cenvat credit. It has also been contended that though appellant is contesting the applicability under Rule 6, sub-Rule (3) (i) of the Cenvat Credit Rules in their case however, it prove their bonafides they have on their own reversed back Cenvat credit of Rs. 72,80,640/- for the period covered by the show cause notice dated 03/06/2015 and Cenvat credit of Rs. 17,20,620/- have been reversed for show cause notice dated 10/03/2016. These are the proportionate amounts of Cenvat credit availed on the inputs used in the exempted goods. The learned Advocate has also contested that the penalty under Rule 15 of the Cenvat Credit Rule readwith Section 11AC of Central Excise Act is not imposable in their case as the issue involves interpretation of statutory provisions and as soon as it has been pointed out by the department that violation of Rule 6 of Cenvat Credit Rules have taken place, the Cenvat credit availed on proportionate basis on the goods cleared under exemption notification have already been reversed back by them. The learned Advocate has taken support of his argument from catena of judgments, summary of which are given below :-
(i) CCE, Calcutta – IV vs. Hastings Jute Mill – 2001 (135) E.L.T. 708 (Tri. – Kolkata) ; and
(ii) CCE, Jaipur – I vs. Parasrampuria Synthetics Ltd. – 2003 (160) E.L.T. 503 (Tri. – Del.).
4. On the basis of above judgments, the learned Advocate has tried to establish that whether the goods have been cleared under Rule 57C of Erstwhile Rules, following the procedure laid down under Chapter X the applicability of Rule 57C was not required as the Tribunal in the above-mentioned judgments have held that the clearances affected under Chapter X procedure is not the same as clearances of goods which are wholly exempted on payment of central excise duty and therefore the Rule 57C of Modvat Rules was not applicable. Since, the present provisions of Rule 6 are parallel to the Rule 57C of the erstwhile Modvat Rules and as the goods have been cleared following the rules for goods cleared on the concessional rate of the duty, the provision of Rule 6 of the Cenvat Credit Rules, 2004 is not applicable and therefore the confirmation of reversal of the Cenvat credit vide impugned order under challenge under Rule 14 is legally not sustainable. The penalty which have been imposed on them under Rule 15 (2) of Cenvat Credit Rules also need to be set aside.
5. We have also heard the learned DR who has reiterated the findings given in the order-in-original.
6. Having heard both the sides, it will be relevant to have a look at the provisions of the Cenvat Credit Rules as provided under Rule 6 :
'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 for provision of 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 manufacturers 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 for use in the manufacture of dutiable 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 manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely :-
[(i) the manufacturer of goods shall pay an amount equal to five percent of value of the exempted goods and the provider of output service shall pay an amount equal to six percent of value of the exempted services ; or]
(ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A).
Explanation I. – If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.
Explanation II. – For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service.'
7. It can be seen from the above that the provisions of Rule 6 covered the exempted goods also and no specific provisions is there for the goods where the provisions of goods at concessional rate of duty for manufacturer excisable goods Rule 2001 are also required to be followed. The law is very clear that if any input, input services or capital goods find place in manufacture of goods which are exempted from payment of central excise duty in that case, the manufacture is legally required to reverse back the 6% of the value of clearances from the accumulated Cenvat credit. The provisions are very clear that manufacturer is also free to maintain separate account of inputs and the credits thereon for both dutiable as well as exempted goods and in that case the requirement of 6% of the value of clearances is need not to be followed. In this case, since the appellants have not maintain separate account of Cenvat credit availed on exempted as well as dutiable final products, hence, legally they are required to reverse back the 6% of value of clearances of the exempted goods from the Cenvat credit.
8. While holding the above view we also take shelter of this Tribunal’s decision in case of NCS Distilleries/Estates Pvt. Ltd. vs. CCE, Visakhapatnam – 2007(207) E.L.T. 400 (Tri. – Bang.). The relevant extract is reproduced below :-
'4. In the Adjudication order, the Commissioner has given the manufacturing process elaborately. According to him, for applicability of the Rule 57AD(12) of the Central Excise Rules, 1944/Rules 6(3) of the Cenvat Credit Rules, 2001, the input should be used directly in the manufacture of both the dutiable and exempted goods. In other words, both the aforesaid final products should emerges simultaneously using the common inputs. In the absence of same and in the case the exempted final product emerges at the end of the manufacturing process, then Cenvat credit shall not be allowed. In our view, the Commissioner reads many things with regard to the relevant Rules. The point is whether molasses on which Cenvat credit has been taken and is denied by the jurisdictional Commissioner is an input for both the products dutiable and exempted. There is no need to go into details and technicalities of the manufacturing process. The questions to be asked are :-
(1) What are the final products.
(2) Is there any common input.
(3) Whether one product is exempted and the other chargeable to duty.
In the present case, the final products are Extra Neutral Alcohol and Denature Ethyl Alcohol. Denatured Ethyl Alcohol is obtained by adding denatured element to 'Heads & Tails' for which also the input is Molasses. This is not denied. It is not important at what stage one of these products emerges. What is important is whether the above mentioned products are final products or not. As regards the second question, it is not the Revenue’s contention that molasses is not a common input. Molasses is indeed a common input for both the products. As regards the third question, the answer is „yes’in the present case.In such cases, the assessee is supposed to maintain separate accounts for the receipt, consumption, etc. of the inputs. When the separate accounts are not maintained, the assessee shall reverse 8% of the price of the exempted final products. If the assessee fulfill the condition, he would be complying with the rules and there is no need to disallow the Modvat credit on the entire molasses used in the result. We set aside the order of the Commissioner and allow the appeal (E/171/2006) of the assessee and dismissed the Revenue’s appeal (E/457/05) by upholding the Commissioner’s (Appeals) order'.
9. In view of above, we hold that the appellant are legally required to reverse back the input credit availed on the inputs going into the exemptedfinal products. We also are of the view that at later stage, since the appellant have reversed back an amount of Rs. 72,80,640/- for the period covered under show cause notice dated 03/06/2015 and an amount of Rs. 17,20,620/- for the period covered under show cause notice dated 10/03/2016, we find that there is enough compliance of the law as held by the Tribunal in the case of Mercedez Benz India (P) Ltd. vs. CCE, Pune – I – 2015 (40) S.T.R. 381 (Tri. – Mumbai) has already held that :-
'5.4 We find that the appellant admittedly paid an amount of Rs. 4,06,785/- plus interest, this is not under dispute. Therefore in our view, the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand of huge amount of Rs. 24,71,93,529/- of the total value of the vehicle amounting to. Rs. 494,38,70,577/- sold in the market cannot be demanded. We are also of the view that Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. It is also observed that in either of the three options given in sub-rule (3) of Rule 6, there is no provisions that if the assessee does not opt any of the option at a particular time, then option of payment of 5% will automatically be applied. Therefore we do not understand that when the appellant have categorically by way of their intimation opted for option provided under sub-rule (3)(ii), how Revenue can insist that option (3)(i) under Rule 6 should be followed by the assessee'.
10. We are take note of
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Hon’ble Rajasthan High Court decision in case of Union of India vs. Secure Meters Ltd. – 2017 (354) E.L.T. A32 (Raj.). The relevant extract is reproduced below :- 'The Appellate Tribunal in its impugned order had held that the demand of an amount equal to 10% value of exempted final product was not sustainable under Rule 6(3) of Cenvat Credit Rules, 2004 if Cenvat credit attributable to inputs used in manufacture of such exempted product reversed even subsequent to their clearance'. 11. Following the above decisions, we do not find any infirmity so far as confirmation of reversal of Cenvat credit under Rule 14 of the Cenvat Credit Rules, 2004 is concerned, however, since the appellant have already reversed the proportionate amount of Cenvat credit availed by them on the exempted goods and following the judgment of the Tribunal in the case of Mercedez Benz (supra)and Union of India vs. Secure Meters Ltd. (supra), we find that enough compliance of the law under Rule 6 of Cenvat Credit Rules, 2004 since the appellant reportedly have reversed back Cenvat credit proportionately of the exempted goods since before the issue of the show cause notice itself the appellants have reversed back the proportionate Cenvat credits and we do not find any malafide intention on the part of the appellant for intentional attempt to evade or mis-use Cenvat credit and therefore we do not find any ground for imposition of the penalty under Rule 15 of Cenvat Credit Rules readwith Section 11AC of Central Excise Act, 1944. 12. In view of above, the order-in-original stands modified to that extent and appeal is partly allowed.