2019 (9) TMI 1375 - AT - Central Excise

Tribunal: Exemption for Reprocessed Polypropylene Granules Upheld

The Tribunal ruled in favor of the appellant, finding that the demand for a specified percentage of the sale price of exempted Reprocessed Polypropylene ... Application of Rule 6(3)(b)/Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - treatment of duty paid on an intermediate product vis-a -vis liability under Rule 6 - common input and input service credit reversal - requirement of separate accounting under Rule 6(2)Application of Rule 6(3)(b)/Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - treatment of duty paid on an intermediate product vis-a -vis liability under Rule 6 - Liability to pay the percentage charge under Rule 6 on exempted Reprocessed Polypropylene Granules (RPG) where duty was discharged on intermediate waste/scrap and no Cenvat credit was availed on inputs used in manufacture of RPG. - HELD THAT: - The Tribunal found that PP granules are used to manufacture both the dutiable final product (BOPP film) and the intermediate waste/scrap which is captively consumed to produce exempted RPG. Since duty on the intermediate waste/scrap was discharged and the appellant did not take CENVAT credit on inputs used in manufacture of the RPG, Rule 6 does not apply to require payment of the percentage charge on the exempted RPG. The Tribunal relied on the legal proposition that where duty has been paid at the intermediate stage and no subsequent credit is availed, there is no further liability to pay under Rule 6 on the exempted product, and held that the department's contrary view was unsustainable. [Paras 7]No demand under Rule 6 for percentage of value of exempted RPG is sustainable where duty has been paid on the intermediate waste/scrap and no CENVAT credit has been availed on inputs used in the manufacture of RPG.Common input and input service credit reversal - requirement of separate accounting under Rule 6(2) - Whether small usage of lubricants and common input services attract liability under Rule 6 where no credit has been availed for lubricants used in the RPG plant and credit on common input services has been reversed. - HELD THAT: - The Tribunal recorded that the appellant did not avail credit for the small quantity of lubricants used in the RPG plant, supported by internal consumption records, and therefore such lubricants cannot be treated as common inputs attracting Rule 6 liability. Further, the appellant had reversed credit attributable to common input services used in relation to the manufacture of RPG. Reliance was placed on precedents holding that reversal of credit on common inputs and input services negates any demand under Rule 6, even if reversal is after removal. In view of these facts and precedents, the Tribunal found the department failed to appreciate the position and that the demand was unsustainable. [Paras 8, 9]No liability under Rule 6 arises in respect of lubricants where no credit was availed and in respect of input services where credit has been reversed; the departmental demand is unsustainable.Final Conclusion: The impugned order is set aside and the appeal is allowed; no demand under Rule 6 is sustainable given duty paid on the intermediate waste/scrap, non-availment of credit on inputs used in RPG, non-availment of credit for lubricants used in the RPG plant, and reversal of credit on common input services, with consequential relief if any. Issues:Demand of specified percentage of sale price of exempted Reprocessed Polypropylene Granules (RPG) under Rule 6(3)(b)/Rule 6(3)(i) of Cenvat Credit Rules, 2004.Analysis:The judgment revolves around the dispute concerning the demand for a specified percentage of the sale price of exempted RPG under Rule 6(3)(b)/Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The company, engaged in manufacturing Biaxially Oriented Polypropylene Films (BOPP Films), generates waste and scrap during the manufacturing process, which is used to produce exempted RPG. The company does not avail CENVAT credit on the duty paid for the waste and scrap used in RPG production. It is argued that since duty is already paid on the intermediate waste/scrap and no further credit is availed, the demand under Rule 6 is not applicable. The appellant relies on precedents like Texmo Industries and Tata Chemicals Ltd., emphasizing the discharge of duty at the intermediate stage exempts the final product from additional duty payment.The appellant contends that the inputs used for RPG production are identifiable, and no credit is availed on them, making Rule 6 inapplicable. Additionally, the input services for which credit is taken are mainly for dutiable final products, not RPG. The respondent argues that the company failed to maintain separate accounts for common inputs as required by Rule 6(2), necessitating payment under Rule 6(3)(b)/Rule 6(3)(i) for the exempted RPG. However, the Tribunal finds that since duty is paid on waste/scrap used in dutiable goods and RPG, both being dutiable, Rule 6 does not apply. The judgment emphasizes that no duty is required for lubricants in the RPG plant where no credit is availed, and the company has already reversed credit on common input services related to RPG manufacturing.Moreover, the Tribunal cites various judgments, including CGST v. Himmat Glazed Tiles and Jai Balaji Industries Ltd. v. CCE & ST, affirming that no demand is sustainable if credit on common inputs and services is reversed, even post goods removal. Consequently, the impugned order is set aside, and the appeal by the appellant is allowed with any consequential relief.