Cenvat credit accounting for repeated-use crates and furnace oil triggers Rule 6 liability where separate accounts are not maintained.

Rule 6 of the Cenvat Credit Rules applies only to inputs on which credit is availed and which remain subject to the prescribed accounting discipline. Used plastic crates, once received, accounted for and put to use as new inputs, did not require fresh separate accounting for repeated use, so Rule 6(3)(b) liability was not attracted. After the amendment to Rule 6(2) of the Cenvat Credit Rules, 2004, furnace oil used for both dutiable and exempted goods required separate accounts; in the absence of such accounts, the prescribed percentage under Rule 6(3)(b) was payable. The demand on furnace oil was upheld, but the penalty was reduced.

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Issues: (i) Whether used plastic crates, after their initial accounting as new inputs, remained "inputs" requiring separate accounts under Rule 6(2) of the Cenvat Credit Rules, 2002 for the purpose of Rule 6(3)(b) liability; (ii) Whether furnace oil, after the amendment to Rule 6(2) of the Cenvat Credit Rules, 2004, attracted payment under Rule 6(3)(b) for non-maintenance of separate accounts, and whether the penalty required reduction.

Issue (i): Whether used plastic crates, after their initial accounting as new inputs, remained "inputs" requiring separate accounts under Rule 6(2) of the Cenvat Credit Rules, 2002 for the purpose of Rule 6(3)(b) liability.

Analysis: Rule 2(g) defines inputs to include packing material used in or in relation to manufacture, while Rule 3 permits credit only on goods received in the factory under prescribed duty-paying documents. Rule 6 obliges maintenance of separate accounts for inputs on which credit is availed and which are intended for use in dutiable and exempted final products. Once the new crates had been received, accounted for, and put to use, the further repeated use of those crates did not require fresh accounting under Rule 6. The demand proceeded on the erroneous premise that the entire stock of used crates had to be treated as common inputs attracting the 8% levy.

Conclusion: The demand under Rule 6(3)(b) of the Cenvat Credit Rules, 2002 was unsustainable and the assessee succeeded on this issue.

Issue (ii): Whether furnace oil, after the amendment to Rule 6(2) of the Cenvat Credit Rules, 2004, attracted payment under Rule 6(3)(b) for non-maintenance of separate accounts, and whether the penalty required reduction.

Analysis: After the amendment brought into force by Notification No. 27/2005-C.E. (N.T.) dated 16-5-2005, fuel used as an input also fell within Rule 6(2). The assessee had not maintained separate accounts in respect of furnace oil used for both dutiable and exempted goods during the relevant period. In that situation, Rule 6(3)(b) required payment of the prescribed percentage of the exempted clearances. The Tribunal found the duty demand to be in accordance with law, but considered the penalty excessive in the circumstances.

Conclusion: The demand under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 was upheld, while the penalty was reduced from Rs. 20 lakhs to Rs. 1 lakh.

Final Conclusion: The assessee succeeded on the dispute concerning repeated use of plastic crates, but failed on the furnace oil issue, with only limited relief granted by reduction of penalty.

Ratio Decidendi: Rule 6 applies only to inputs on which Cenvat credit is availed and which remain within the accounting discipline of receipt, consumption and inventory; once the initial consumption of such inputs is accounted for, repeated use of the same items does not attract Rule 6(3)(b), whereas inputs brought within Rule 6(2) by amendment require separate accounting and attract the prescribed percentage if such accounts are not maintained.

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