Appellants not liable for penalty under Rule 15 for reversing input credit; appeal partly allowed.

The Tribunal held that the appellants were required to reverse the input credit availed on inputs used in exempted final products under Rule 6 of the Cenvat Credit Rules, 2004. However, as the appellants had already reversed the proportionate amounts and there was no malafide intention, the penalty under Rule 15 read with Section 11AC was deemed unjustified. Consequently, the order-in-original was modified, and the appeal was partly allowed.

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Issues Involved:
1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004.
2. Requirement to reverse Cenvat credit on exempted goods.
3. Imposition of penalty under Rule 15 of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004:
The appellants argued that Rule 6 of the Cenvat Credit Rules, 2004, did not apply to their case as the goods were cleared under Notification No. 65/95-CE, which provides a conditional exemption benefit. They contended that the exemption is available to the recipient of the goods and not to the manufacturer. The Department, however, believed that the appellants should have reversed Cenvat credit at 6% of the value of the exempted goods since they did not maintain separate accounts for Cenvat credit availed on exempted and dutiable goods.

2. Requirement to Reverse Cenvat Credit on Exempted Goods:
The Tribunal examined Rule 6 and noted that it requires manufacturers to reverse 6% of the value of clearances of exempted goods if separate accounts are not maintained. The Tribunal referenced judgments such as CCE, Calcutta-IV vs. Hastings Jute Mill and CCE, Jaipur-I vs. Parasrampuria Synthetics Ltd., which supported the argument that clearances under Chapter X procedures are not the same as clearances of wholly exempted goods. The Tribunal concluded that the appellants were required to reverse the input credit availed on inputs used in exempted final products.

3. Imposition of Penalty:
The appellants had already reversed the proportionate Cenvat credit before the issuance of show cause notices, which demonstrated their bonafides. The Tribunal noted the absence of malafide intention to evade or misuse Cenvat credit. Citing the case of Mercedez Benz India (P) Ltd. vs. CCE, Pune-I, the Tribunal held that the objective of Rule 6 is to prevent the availing of Cenvat credit on inputs used in exempted goods. Since the appellants complied with this by reversing the credit proportionately, the imposition of a penalty was deemed unnecessary.

Conclusion:
The Tribunal held that the appellants were legally required to reverse the input credit availed on inputs used in exempted final products. However, since they had already reversed the proportionate amounts and there was no malafide intention, the penalty under Rule 15 read with Section 11AC was not justified. The order-in-original was modified, and the appeal was partly allowed.

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