2022 (11) TMI 923 - AT - Central Excise

Tribunal allows appeal by Reliance Industries Ltd, finds rule 6 inapplicable. Impugned order set aside.

The Tribunal allowed the appeal by M/s Reliance Industries Ltd, holding that rule 6 of CENVAT Credit Rules, 2004, was inapplicable to the clearances in ... Refund claim - inadvertent reversal of CENVAT Credit under rule 6(3A) of CENVAT Credit Rules, 2004 - liquefied petroleum gas (LPG) - exempt goods or not - April 2010 and March 2011 - HELD THAT:- The appellant is a manufacturer of excisable goods and had availed credit under CENVAT Credit Rules, 2004 on eligible ‘inputs’ used in the manufacture of excisable goods but, under the impression that ‘liquefied petroleum gas (LPG)’, exempted by notification no. 4/2006-Central Excise Act, 1944 dated 1st March 2006 when cleared for use under the ‘public distribution system (PDS)’ were ‘exempted goods’ within the meaning of rule 2(d) of CENVAT Credit Rules, 2004, reversed such proportion and also excluded it for the computation prescribed in rule 6(3A) of CENVAT Credit Rules, 2004. The case has been decided in appellant own case in THE PRINCIPAL COMMISSIONER, CENTRAL GST AND CENTRAL EXCISE VERSUS M/S. RELIANCE INDUSTRIES LTD. [2022 (5) TMI 650 - GUJARAT HIGH COURT] where the Hon’ble High Court of Gujarat had considered the very same decisions for the approval accorded to that of the Tribunal and held that This Court, held that since the assessee could not have manufactured gelatin (dutiable final product) using a lesser quantity of hydrochloric acid, Rules 6(1) and 6(2) of the CCR would not come into play. In these circumstances, the principle stands established that rule 6 of CENVAT Credit Rules, 2004 is inoperable ab initio in such clearances - demand set aside - appeal allowed - decided in favor of appellant. Issues Involved:1. Eligibility for refund of reversed CENVAT credit under rule 6(3A) of CENVAT Credit Rules, 2004.2. Classification of 'liquefied petroleum gas (LPG)' as 'exempted goods'.3. Applicability of rule 6 of CENVAT Credit Rules, 2004 in cases of by-products emerging during manufacturing processes.Detailed Analysis:1. Eligibility for Refund of Reversed CENVAT Credit:The appellant, M/s Reliance Industries Ltd, sought a refund of Rs. 3,18,04,141/- which was reversed in their CENVAT credit account. This amount included Rs. 74,27,104 for 'inputs' attributable to 'liquefied petroleum gas (LPG)' and Rs. 2,43,77,037 excluded according to the formula in rule 6(3A)(c)(iii) of CENVAT Credit Rules, 2004. The Tribunal referenced the decision of the Hon'ble High Court of Gujarat in Principal Commissioner of Central GST and Central Excise v. Reliance Industries Ltd and other related judgments, which supported the appellant's claim that the reversal was improper.2. Classification of 'Liquefied Petroleum Gas (LPG)' as 'Exempted Goods':The appellant reversed CENVAT credit under the impression that LPG, when cleared for use under the 'public distribution system (PDS)', was considered 'exempted goods' as per rule 2(d) of CENVAT Credit Rules, 2004. However, the Tribunal noted that in previous cases involving the appellant, it was decided that LPG should not be classified as 'exempted goods'. The Tribunal cited the Gujarat High Court's judgment in Sterling Gelatin, which clarified that by-products emerging during manufacturing processes do not necessitate separate accounting or reversal of credit if the inputs are used primarily for manufacturing dutiable goods.3. Applicability of Rule 6 of CENVAT Credit Rules, 2004:The Tribunal examined the applicability of rule 6, which restricts CENVAT credit on inputs used in the manufacture of exempted goods. The Tribunal referenced the Gujarat High Court's decision in Sterling Gelatin and the Supreme Court's ruling in National Organic Chemical Industries Limited, where it was held that by-products emerging inevitably during the manufacturing process do not trigger the provisions of rule 6. The Tribunal concluded that the entire quantity of inputs and input services was used for manufacturing dutiable goods, and the emergence of LPG as a by-product did not reduce the quantity of inputs used for dutiable goods. Therefore, rule 6 was deemed inapplicable.Conclusion:The Tribunal established that rule 6 of CENVAT Credit Rules, 2004, was inoperable in the clearances in question. Consequently, the appeal was allowed, and the impugned order was set aside. The cross-objection was also disposed of. The operative part of the order was pronounced in open court on 26th September 2022.This detailed analysis preserves the legal terminology and significant phrases from the original text, ensuring a thorough understanding of the judgment while maintaining the privacy of the parties involved.