2014 (7) TMI 479 - AT - Central Excise

Tribunal rules in favor of appellant due to unreasonable application of Rule 6(3)

The Tribunal found in favor of the appellant, ruling that the application of Rule 6(3) without considering the practical challenges of maintaining ... CENVAT Credit - reversal of credit towards exempted goods - demand of an amount @5%/10% of the sales value - common input services - Interest u/s 11AB - Penalty u/s 11AC - Held that:- The view of the department and the impugned order based on the same is absurd, as even if the appellant want to maintain separate account in respect of the services mentioned above, it would be impossible for them. Lex non cogit ad impossibilia is well settled legal principle and therefore, the option of maintaining separate account and inventory in respect of the services cannot be forced upon them. Moreover, Section 6(3) of the Rules, on account of retrospective amendment to this Rule, also gives an option to a manufacturer to reverse the proportionate credit in respect of the connated inputs/ input services used in or in relation to the manufacture of exempted final products, which the appellant in this case have done. In fact, the proportionate credit comes only to ₹ 13,231/- against which the credit reversed is ₹ 88,756/-. We are therefore of the view that the impugned order is not sustainable and as such, the appellant have a strong prima facie case in their favour - The requirement of pre-deposit of the amount demanded under Rule 6(3) of the Cenvat Credit Rules, interest thereon and penalty is, therefore, waived for hearing of the appeal and recovery thereof stayed - Stay granted. Issues:Manufacture of PVC Ribbed Strainer Pipes, PVC pipes, and Deep Well Hand Pumps chargeable to central excise duty; Maintenance of separate accounts for dutiable and exempted final products; Availing of various services for both dutiable and exempted products; Demand of amount under Rule 6(3) of the Cenvat Credit Rules; Applicability of retrospective amendment to Rule 6(3); Prima facie case in favor of the appellant.Analysis:The appellant manufactures PVC Ribbed Strainer Pipes, PVC pipes, and Deep Well Hand Pumps, with Deep Well Hand Pumps being fully exempt from duty. The appellant maintained separate accounts for inputs used in dutiable and exempted final products. However, the dispute arose regarding availing services like telecom, Chartered Accountant, General Insurance, Business Auxiliary, and Management Consultancy services for both types of products without separate accounts. A show cause notice was issued for demand under Rule 6(3) of the Cenvat Credit Rules, leading to a confirmed demand by the Commissioner along with interest and penalty. The appellant argued that the retrospective amendment to Rule 6(3) allowed for the reversal of proportionate credit, which they had done. The appellant's plea was not accepted, leading to the filing of this appeal.During the hearing, the appellant contended that maintaining separate accounts for common services used in both types of products was impractical. They highlighted the retrospective amendment allowing for the reversal of proportionate credit, which resulted in a minimal amount due after reversal. The appellant argued that forcing them to pay 5% / 10% of the value of exempted final products was not justified. On the other hand, the Departmental Representative supported the Commissioner's findings, emphasizing the lack of separate accounts for common services. The appellant's request for waiver from pre-deposit was based on the strong legal basis favoring them.The Tribunal observed that the appellant had indeed maintained separate accounts for inputs but faced challenges in doing so for common services. The application of Rule 6(3) without considering the practical impossibility of maintaining separate accounts for services was deemed unreasonable. The retrospective amendment provided an option to reverse proportionate credit, which the appellant had already done, resulting in a minimal amount due. The Tribunal found the impugned order unsustainable and acknowledged a strong prima facie case in favor of the appellant. Consequently, the requirement of pre-deposit, interest, and penalty was waived, and the recovery stayed pending the appeal's disposal.