2012 (7) TMI 781 - AT - Central Excise

Appeal allowed on Cenvat credit admissibility issues, remanded for fresh adjudication.

The appeal in this case was allowed by way of remand for both issues concerning the admissibility of Cenvat credit. The Tribunal directed a fresh ... Cenvat credit inadmissible on inputs used for manufacture of non-excisable goods - Cenvat credit inadmissible on services used for trading activity - Applicability of Rule 6(3)(d)(iii) of the Cenvat Credit Rules as a guideline for apportionment of common services - Remand for determination of intention before imposition of penalty - Duty of adjudicating authority to afford opportunity to substantiate worksheets and verify computationsCenvat credit inadmissible on inputs used for manufacture of non-excisable goods - Remand for determination of intention before imposition of penalty - Admissibility of Cenvat credit on raw materials and services used in manufacture of goods held to be non-excisable - HELD THAT: - The Tribunal held that under the Cenvat Credit Rules input means goods used in or in relation to manufacture of final products and that final product means excisable goods. Goods containing alcohol were found not to be excisable under the Central Excise Act, and therefore inputs used in manufacture of such goods do not qualify as inputs for Cenvat credit. Consequently, credit availed on such inputs is not admissible. The appellants contended that they had been reversing 10% under Rule 6(3)(b) and, on being pointed out, had paid the credit claimed for the period April, 2004 to August, 2006; they further argued that the amount reversed exceeded the attributable credit, negating any intention to take ineligible credit. The Tribunal observed that the Commissioner had not given a finding on the appellants' assertion regarding absence of intent and therefore remanded the matter to the Commissioner to decide that specific aspect before concluding on penalty. [Paras 7]Credit on inputs used for non-excisable goods is not admissible; matter remanded to the Commissioner to examine and record a finding on whether there was intention to take ineligible credit prior to imposing penalty.Cenvat credit inadmissible on services used for trading activity - Applicability of Rule 6(3)(d)(iii) of the Cenvat Credit Rules as a guideline for apportionment of common services - Duty of adjudicating authority to afford opportunity to substantiate worksheets and verify computations - Admissibility and quantification of Cenvat credit on input services attributable to trading activities and common services apportionment for the period prior to 1.4.2007 - HELD THAT: - The Tribunal found that the appellants' head office trading activity was neither an output service nor a final product; therefore credit on services used for trading activity is not allowable. The appellants had refunded the disputed service credit amounts before issuance of the show cause notice and submitted a work-sheet quantifying the credit attributable to traded goods. The Commissioner relied upon the apportionment method in Rule 6(3)(d)(iii) (introduced w.e.f. 1.4.2007) as a rational guideline, but the period in dispute predates that Rule. The Tribunal noted that the appellants' worksheet had not been formally rejected and that they should be given an opportunity to substantiate their computations and produce documentary evidence. Accordingly the Tribunal remitted the question of quantification and verification of the worksheet to the original authority for fresh adjudication after giving the appellants an opportunity to be heard and to furnish supporting documents. [Paras 8]Credit on services used for trading activity is not admissible; the matter of quantification of ineligible credit is remitted to the adjudicating authority to verify the appellants' worksheet, allow them to substantiate their computations, and pass a fresh adjudication order.Final Conclusion: Appeal allowed in part by way of remand: credits on inputs for non excisable goods and on services for trading activity are held inadmissible, but the Tribunal remitted (a) the question of appellants' intention relevant to penalty to the Commissioner for determination, and (b) the question of quantification of ineligible service credit to the original authority for fresh adjudication after affording the appellants an opportunity to substantiate their worksheet. Issues:1. Admissibility of Cenvat credit on raw materials and services used for non-excisable goods.2. Admissibility of Cenvat credit on services used for traded goods.Analysis:Issue 1:The first issue pertains to the admissibility of Cenvat credit on raw materials and services used for non-excisable goods. The appellants, engaged in manufacturing cosmetic preparations, were importing and trading in certain products containing alcohol. The Department contended that goods containing alcohol are non-excisable and, therefore, the inputs used for such goods do not qualify as inputs for availing Cenvat credit. The Commissioner confirmed the demand for inadmissible credit and imposed penalties. The appellants argued that they were under a bona fide belief regarding the eligibility of credit and voluntarily paid back the credit upon being pointed out by the Department. The Tribunal remanded the matter back to the Commissioner to determine the intention of the appellants in availing ineligible credit before imposing penalties.Issue 2:The second issue revolves around the admissibility of Cenvat credit on services used for traded goods. The trading activity undertaken by the appellants was deemed ineligible for Cenvat credit as it did not qualify as output services or final products. The appellants voluntarily paid back the credit upon notification by the Department. The Commissioner used Rule 6(3)(d)(iii) for apportioning common services between dutiable and exempted services, which the appellants contested. The Tribunal found merit in the appellants' argument, noting that the work-sheet submitted by them was not rejected by the Commissioner. The matter was remanded back to the original authority for a fresh adjudication, providing the appellants with an opportunity to substantiate their computation of the work-sheet and explain their case regarding the calculation of credit availed on traded goods.In conclusion, the appeal was allowed by way of remand for both issues, emphasizing the need for a thorough examination of the appellants' intentions in availing the credits and providing them with a fair opportunity to present their case with supporting documentation.