2008 (8) TMI 97 - AT - Central Excise

Interpretation of Cenvat Credit Rule 6(3)(b) on Reversal of Input Credit

The court held that Rule 6(3)(b) of the Cenvat Credit Rules, 2002 does not apply when the Cenvat credit attributable to inputs used in manufacturing ... Common inputs - applicability of Rule 6 of CCR - Whether the payment of 8% is required to be made in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2002, when the amount equivalent to the Cenvat credit attributable to the inputs used in exempted final products has been paid prior to the removal of the exempted final product – held that payment of amount of 8% is not required because reversal of duty amount before removal amounts to non-availment of credit Issues Involved:- Applicability of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 when the Cenvat credit attributable to inputs used in the manufacture of exempted final products is reversed prior to the removal of the exempted final products from the factory.Issue-wise Detailed Analysis:1. Applicability of Rule 6(3)(b) of the Cenvat Credit Rules, 2002:The core issue revolves around whether Rule 6(3)(b) of the Cenvat Credit Rules, 2002 applies when the Cenvat credit attributable to inputs used in the manufacture of exempted final products is reversed before the removal of these products from the factory. The majority opinion held that Rule 6(3)(b) does not apply in such cases, while the dissenting opinion argued that it does.Majority Opinion:- The majority opinion, delivered by the Member (Judicial) and the Vice-President, concluded that the provisions of Rule 6(3)(b) do not apply when the Cenvat credit attributable to the common inputs used in the manufacture of exempted final products has been reversed prior to the removal of the exempted final products from the factory.- The majority referred to the Supreme Court's decisions in Chandrapur Magnet Wires Pvt. Ltd. and Bombay Dyeing & Manufacturing, which established that the reversal of credit taken on inputs is equivalent to non-availment of credit.- The majority also noted that the Tribunal's decision in Life Long Appliances Ltd., upheld by the Supreme Court, supported the view that reversal of input credit is sufficient to comply with the requirements of Rule 6.Dissenting Opinion:- The dissenting opinion, delivered by Member (Technical), argued that Rule 6(3)(b) is applicable even when the Cenvat credit attributable to the inputs used in the manufacture of exempted final products is reversed before the removal of the exempted final products from the factory.- The dissent emphasized that Rule 6(3)(b) explicitly requires the manufacturer to pay an amount equal to 8% or 10% of the total price of the exempted final products if separate accounts are not maintained.- The dissenting member highlighted that the Supreme Court's decision in Chandrapur Magnet Wires Pvt. Ltd. was based on the context of Rule 57C of the Central Excise Rules, 1944, and not on Rule 57CC or Rule 6 of the Cenvat Credit Rules, 2002, which came into existence later.- The dissent also pointed out that the CBEC Circulars and subsequent amendments to Rule 6 indicate that the legislature intended for manufacturers to follow the provisions of Rule 6(3)(b) strictly, without the option of reversing the credit.Conclusion:- The majority concluded that the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 are not applicable when the amount equivalent to the Cenvat credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory.- The dissenting opinion, however, maintained that Rule 6(3)(b) is applicable in such cases, emphasizing the need for strict adherence to the rule as intended by the legislature.Final Judgment:- The reference was answered in favor of the assessee, stating that 'The provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 are not applicable when the amount equivalent to the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory.'Pronouncement:- The judgment was pronounced in the court on 23-10-2008, with the majority opinion prevailing.Separate Judgment:- Member (Technical) delivered a separate judgment, disagreeing with the majority opinion and providing a detailed rationale for why Rule 6(3)(b) should apply even when the credit is reversed before removal of the exempted final products.