Successful Appeal: No Separate Accounts Needed for Inputs

The appeal against the demand under Rule 6(3) of Cenvat Credit Rules, 2004 was allowed. The appellant, engaged in manufacturing steel furniture, successfully argued that separate accounts for inputs were unnecessary as they primarily manufactured dutiable goods and some clearances were duty-free under a specific notification. The appellant's regular filing of ER-1 returns disclosing goods cleared without duty payment rendered the extended period of limitation inapplicable. The decision in a previous case involving wholly exempted goods was deemed irrelevant, leading to the setting aside of the impugned order and granting of consequential relief.

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Issues:
Appeal against demand under Rule 6(3) of Cenvat Credit Rules, 2004 for non-reversal of credit on exempted goods without separate account maintenance.

Analysis:
1. The appellant, engaged in manufacturing steel furniture, faced a demand under Rule 6(3) of Cenvat Credit Rules, 2004 due to not maintaining separate accounts for inputs used in manufacturing both exempted and dutiable goods. The audit revealed discrepancies in clearing goods with and without payment of central excise duty, leading to a show cause notice for the period November 2015 to March 2017.

2. The appellant argued that as they manufactured dutiable goods and some clearances were duty-free under a specific notification, separate accounts for inputs were unnecessary. They contended that since they filed ER-1 returns regularly, the show cause notice was time-barred.

3. The respondent contended that the appellant, by clearing goods without duty payment, should have maintained separate accounts for inputs. Failure to do so required the reversal of Cenvat credit or payment of a specified percentage of the value of goods cleared without duty. The respondent justified invoking the extended period of limitation, citing potential duty evasion if not detected during audit.

4. After hearing both parties, it was established that the appellant regularly filed ER-1 returns, disclosing the clearance of goods without duty payment, rendering the extended period of limitation inapplicable. Moreover, as the appellant primarily manufactured dutiable goods, the provisions of Rule 6(3) of Cenvat Credit Rules did not apply to their case.

5. The decision in Narmada Valley Fertilizers case, relied upon by the respondent, was deemed inapplicable as it involved goods wholly exempted from duty, unlike the present case. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.

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