Tribunal rules in favor of appellants on tax liability due to lack of separate accounts

The Tribunal found the appellants not liable for payment of 10% of the value of exempted goods due to their failure to maintain separate accounts for common inputs. The appellants had reversed proportionate credit despite not maintaining separate accounts, which the department disregarded. The Tribunal referenced a previous judgment in the appellants' favor and cited relevant case law supporting the adequacy of reversing credit on common inputs for exempted goods. As a result, the Tribunal set aside the demand, allowed the appeal, and provided for any consequential relief.

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Issues:
Whether appellants are liable for payment of 10% of the value of exempted goods due to not maintaining separate accounts for common inputs used in manufacturing dutiable and exempted goods.

Analysis:
The appellants, engaged in manufacturing rubber products, also produce rubber compound used in excisable goods consumed without duty payment. Initially, they maintained separate accounts for inputs until 31.3.2005, availing duty credit for the rubber compound. However, from 1.4.2005, they informed the department of discontinuing separate accounts and expunging credit at the time of clearance without duty payment. A show cause notice for irregularly availed credit amounting to &8377;17,44,431 was issued for the period 10/2005 to 3/2006. The original authority confirmed the demand, imposed interest and penalty, upheld by the Commissioner (Appeals), leading to the current appeal.

The appellant's counsel argued that though separate accounts were not maintained, they reversed proportionate credit, which the department disregarded, demanding 10% of exempted goods' value. Reference was made to a previous judgment in the appellant's favor (2014 (301) ELT 87) for a different period. Additionally, citations of CCE Vs. CESTAT - 2015 (323) ELT 323 (Mad.) and CCE Vs. ICMC Corporation Ltd. - 2015 (315) ELT 388 (Mad.) were presented, supporting the adequacy of reversing credit on common inputs for exempted goods under Rule 6(3) of CENVAT Credit Rules, 2004.

Consequently, the Tribunal found the demand unsustainable, setting aside the impugned order and allowing the appeal with any consequential relief. The operative part of the order was pronounced in open court.

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