2023 (11) TMI 150 - AT - Central Excise

Manufacturer wins CENVAT credit dispute over forgings cleared without duty under Rule 6(3)

M/s. M.M. Forgings Ltd. Versus The Commissioner of GST & Central Excise, Tiruchirapalli

CESTAT Chennai ruled in favor of appellant regarding CENVAT credit reversal dispute. Appellant manufactured forgings cleared to principal manufacturer ... CENVAT Credit - input services commonly used by the appellant in the manufacture of their own dutiable final products as well as in the manufacture of forgings which was cleared to M/s.TENGEL without payment of duty - non-maintenance of separate records - HELD THAT:- On perusal of the facts as brought out from the records, it is understood that goods cleared to the principal manufacturer has suffered duty at the hands of the principal manufacturer. This being so, the final product cleared by the appellant to the principal manufacturer cannot be considered as exempted goods. All the products cleared by the appellant viz. forgings are dutiable products and has suffered duty at the hands of the appellant or the principal manufacturer. Then, Rule 6 (3) does not come into application. The appellant is not liable to reverse the credit. The issue was considered by the Hon’ble Apex Court in the case of ESCORTS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI [2004 (8) TMI 106 - SUPREME COURT] wherein the Hon’ble Apex Court held that when the final product has been subject to duty, it cannot be said that intermediate product which is cleared without payment of duty is an exempted good for compliance with the provisions of Rule 57C of erstwhile Modvat Credit. Thus, the demand cannot sustain. The impugned order is set aside. Appeal is allowed. Issues Involved:1. Whether the goods cleared to the principal manufacturer without payment of duty should be considered as exempted goods.2. Whether the appellant is required to maintain separate accounts for inputs and input services used for dutiable and exempted goods.3. Whether the appellant is liable to reverse the credit or pay a percentage of the value of exempted goods.Issue 1: Exempted GoodsThe Department contended that the goods cleared to the principal manufacturer without payment of duty should be considered as exempted goods. The appellant argued that these goods are dutiable and the duty is discharged by the principal manufacturer, thus they cannot be considered as exempted goods.The Tribunal referred to the Hon'ble Apex Court's decision in Escorts Ltd. Vs CCE Delhi, which held that when the final product is subject to duty, the intermediate product cleared without payment of duty cannot be considered as exempted goods. The Tribunal also cited the Larger Bench decision in Sterlite Industries (I) Ltd. Vs CCE Pune, which supported this view.Based on these precedents, the Tribunal concluded that the goods cleared by the appellant to the principal manufacturer are dutiable and cannot be considered exempted goods. Therefore, Rule 6 (3) does not apply, and the appellant is not liable to reverse the credit.Issue 2: Maintenance of Separate AccountsThe Department argued that the appellant should maintain separate accounts for inputs and input services used for dutiable goods and those used for goods cleared without payment of duty. The appellant contended that there is no requirement to maintain separate accounts as the goods cleared to the principal manufacturer are dutiable.The Tribunal relied on the decision in Deccan Alloys Pvt. Ltd. Vs CCE Chennai, which held that there is no requirement to maintain separate accounts when the goods cleared to the principal manufacturer are subject to duty. The Tribunal found merit in the appellant's argument and concluded that the appellant is not required to maintain separate accounts.Issue 3: Liability to Reverse Credit or Pay PercentageThe Department argued that the appellant is liable to reverse the credit or pay a percentage of the value of exempted goods as per Rule 6 (3). The appellant contended that since the goods cleared to the principal manufacturer are dutiable, they are not liable to reverse the credit or pay any percentage.The Tribunal, after considering the facts and evidence, and following the decisions in Escorts Ltd. and Sterlite Industries, concluded that the demand for reversal of credit or payment of a percentage cannot be sustained. The impugned order was set aside, and the appeal was allowed with consequential relief.(dictated and pronounced in court)