2015 (8) TMI 1236 - AT - Central Excise

Tribunal reverses credit ruling, deems demand unsustainable. Interest and penalties unjustified. (2)

Mahindra & Mahindra Ltd. Versus Commissioner of Central Excise, Nagpur

The Tribunal allowed the appeal, ruling in favor of the appellant. It found that the appellant complied with Rule 6(2) from 1.9.2004, reversing the credit ... Denial of CENVAT Credit - agricultural tractors - switching over from Rule 6(3)(b) to Rule 6(2) of the Cenvat Credit Rules - delay in reversal of the cenvat credit. - Exemption under Notification No.23/2004-CE dated 9.7.2004 - Held that:- There is nothing in Cenvat Credit Rules or any other provision in the law that before switching over to Rule 6(2) above, a manufacturer is required to reverse the credit of inputs available in its stores, work in progress and in the finished goods on that date and only after reversing the credit the manufacturer can switch over to Rule 6(2). In the absence of any such prohibition, we are unable to appreciate Revenue's contention that the appellant is required to pay an amount under Rule 6(3)(b) till 24.9.2004 i.e. the date when they reversed the credit attributable to inputs in its stores, work in progress and on the finished goods as on 31.8.2004. In the present case, the appellant has not reversed the credit on inputs on proportional basis as envisaged in the amended Rule 6(3) and in our view, the discussion on the said Rule is irrelevant in the facts of the present case. In the present case, the appellant has switched over to Rule 6(2) w.e.f. 1.9.2004 and reversed actual credit on its stores, work in progress and finished products as on 31.8.2004 and thus submissions by both sides are irrelevant to the facts of the present case. - Decided in favour of assessee. Issues involved:1. Applicability of Rule 6(1), 6(2), and 6(3) of the Cenvat Credit Rules, 2004.2. Validity of the demand for 8/10% of the total price of exempted goods.3. Reversal of Cenvat credit on inputs used in the manufacture of exempted goods.4. Application of retrospective amendments to Cenvat Credit Rules.5. Maintenance of separate accounts for inputs used in dutiable and exempted goods.6. Imposition of interest and penalties.Issue-wise detailed analysis:1. Applicability of Rule 6(1), 6(2), and 6(3) of the Cenvat Credit Rules, 2004:The appellant, engaged in the manufacture of tractors, faced a situation where their goods became exempt from central excise duty as of 9.7.2004. Under Rule 6(1), Cenvat credit is not allowed on inputs used in the manufacture of exempted goods. Rule 6(2) mandates maintaining separate accounts for inputs used in dutiable and exempted goods. Rule 6(3) requires the manufacturer to pay an amount equal to 8% of the total price of exempted goods if separate accounts are not maintained. The appellant initially followed Rule 6(3)(b) due to practical difficulties in segregating inputs but switched to Rule 6(2) from 1.9.2004.2. Validity of the demand for 8/10% of the total price of exempted goods:Revenue issued a show cause notice demanding an amount equal to 8/10% of the total price of exempted tractors cleared between 1.9.2004 to 24.9.2004 under Rule 6(3)(b). The Commissioner confirmed the demand, interest, and penalties. The appellant contended that the delay in reversing the credit was due to detailed accounting and computation of credit on inputs. They argued that from 1.9.2004, they had not availed credit on inputs used in exempted products and maintained separate accounts as per Rule 6(2).3. Reversal of Cenvat credit on inputs used in the manufacture of exempted goods:The appellant reversed the credit on inputs lying in stores, work in progress, and finished goods as of 31.8.2004 on 24.9.2004. They argued that there is no requirement in the Cenvat Credit Rules to reverse the credit before switching to Rule 6(2). The Tribunal agreed, stating there is no provision in the law that mandates reversing the credit before switching to Rule 6(2).4. Application of retrospective amendments to Cenvat Credit Rules:The appellant cited retrospective amendments introduced by the Finance Act, 2010, which allowed manufacturers to reverse proportional credit on inputs used in exempted products. The Tribunal found this discussion irrelevant as the appellant had already switched to Rule 6(2) and reversed the actual credit on inputs as of 31.8.2004.5. Maintenance of separate accounts for inputs used in dutiable and exempted goods:The Tribunal noted that from 1.9.2004, the appellant stopped taking credit on inputs meant for exempt goods and reversed the credit on inputs used in hydraulic systems if used in exempt tractors. The Revenue's objection was about the delay in reversal, but the Tribunal found that the appellant had effectively maintained separate accounts from 1.9.2004.6. Imposition of interest and penalties:The Commissioner had imposed interest under Section 11AB and penalties under Rule 13 of the erstwhile Cenvat Credit Rules, 2002, and Rule 15 of the Cenvat Credit Rules, 2004. The appellant argued that no interest is chargeable as the amount to be reversed was paid by 24.9.2004. The Tribunal, referencing the Supreme Court's decision in Sonalac Paints and Coatings Ltd., found that reversal of credit at a later date does not disentitle the appellant from availing the exemption.Conclusion:The Tribunal allowed the appeal, finding that the appellant had complied with the requirements of Rule 6(2) from 1.9.2004 and reversed the credit on inputs as required. The demand for 8/10% of the total price of exempted goods was not sustainable, and the imposition of interest and penalties was not justified.