2018 (6) TMI 992 - AT - Central Excise

Tribunal rules against 10% demand on exempted goods under Cenvat Credit Rules. (3)

The Tribunal found that the demand of 10% equal to the value of exempted goods cleared by the appellants was not justified under Rule 6(3) of Cenvat ... Maintenance of separate accounts for inputs used in manufacture of dutiable and exempted goods - Cenvat credit reversal and proportionate credit - Provisions of Rule 6(3) of Cenvat Credit Rules, 2004 - 10% deemed payment in respect of exempted goods under Rule 6(3)Maintenance of separate accounts for inputs used in manufacture of dutiable and exempted goods - Provisions of Rule 6(3) of Cenvat Credit Rules, 2004 - 10% deemed payment in respect of exempted goods under Rule 6(3) - Invokability of the provisions of Rule 6(3) of Cenvat Credit Rules, 2004 and consequent demand of an amount equal to 10% of the value of exempted goods - HELD THAT: - The Tribunal found on the record of the show cause notice that the appellants had availed proportionate Cenvat credit in a manner which indicated maintenance of separate records for inputs used in the manufacture of dutiable as well as exempted final goods. Given this factual position - that separate accounts/inventory for inputs attributable to exempted production were maintained - the mandatory consequence under Rule 6(3), which operates where such separate accounts are not maintained and prescribes treating 10% of the value of exempted goods as payable, did not arise. Accordingly, the factual finding that separate records were kept precluded invocation of the deemed 10% payment rule and defeated the demand made under that provision. [Paras 7, 8]Demand of an amount equal to 10% of the value of exempted goods under Rule 6(3) set aside as Rule 6(3) is not invokable where separate accounts for inputs used in exempted and dutiable manufacture are maintained.Final Conclusion: Impugned orders confirming the demand of 10% of the value of exempted goods under Rule 6(3) are set aside and the appeals are allowed with consequential relief, the Tribunal having recorded that the appellants maintained separate records for inputs used in dutiable and exempted production. Issues:- Whether the demand of 10% equal to the value of exempted goods cleared by the appellants is justified under Rule 6(3) of Cenvat Credit Rules, 2004.Analysis:Issue 1: Demand of 10% equal to the value of exempted goodsThe appellants appealed against the demand of 10% equal to the value of exempted goods cleared by them. The investigation revealed that the appellants were not maintaining separate accounts for the quantities of zinc skimming used in the manufacture of dutiable and exempted goods. The appellants argued that they were segregating zinc skimming into zinc ash and zinc metal, and not availing Cenvat credit on inputs used in the manufacture of exempted goods. They contended that the demand was incorrect as they were maintaining separate records. The AR supported the demand based on Rule 6(3) of Cenvat Credit Rules, emphasizing the necessity of maintaining separate accounts for inputs used in both dutiable and exempted goods.Analysis Continued:The Tribunal considered the submissions and found that the main issue was the applicability of Rule 6(3) in this case. The show cause notice indicated that the appellants were maintaining separate records for inputs used in dutiable and exempted goods. As the appellants were indeed maintaining separate records, Rule 6(3) was deemed inapplicable. Therefore, the demand for 10% equal to the value of exempted goods was not sustainable. The Tribunal set aside the impugned orders and allowed the appeals with consequential relief, if any.