2004 (3) TMI 214 - AT - Central Excise

Company Must Pay 8% for Using Modvatable Inputs Without Separate Accounts, No Penalty Imposed by Tribunal.

The Appellate Tribunal CESTAT, New Delhi, determined that the company was liable to pay 8% of the value of exempted products due to the use of modvatable ... Determination of liability to pay 8% of the value of exempted products in the manufacture of which modvatable inputs were used - HELD THAT:- It is not in dispute that the inputs in respect of which Cenvat credit has been taken by the respondents were used in the manufacture of both dutiable goods and exempted goods and separate accounts for receipt, consumption and inventory of inputs has not been maintained. In such a situation, sub-rule (2), further, provided that the manufacturer opting not to maintain separate accounts, shall pay an amount equal to 8% of the total price of the exempted final products. In view of the fact that the appellants had not maintained the separate accounts, they have to pay an amount equal to 8% of the price of the exempted final products. The provisions of Rule 57AD are applicable to the facts of the present matter as the inputs had been used also in the manufacture of exempted products and the separate accounts have not been maintained. Therefore, the respondents are liable to pay an amount equal to 8% of the price. Board's Circular dated 16-10-2001, is not an alternative to Rule 57AD. It only clarifies that further action can be taken under Rule 12 of the Cenvat Credit Rules for reversing the Modvat credit. The machinery for realisation of the 8% amount is enhanced in Rule 57AD (2)(b) of the Central Excise Rules, 1944 itself. We, therefore, hold that the respondents are liable to pay amount equivalent to 8% of the price of exempted products. We, however, agree with the learned Chartered Accountant that as the issue involved is regarding interpretation of provisions of Rule 57AD, no penalty is imposable on the respondents. The appeal is disposed of in the above terms. Issues involved: Determination of liability to pay 8% of the value of exempted products in the manufacture of which modvatable inputs were used.Summary:The appeal before the Appellate Tribunal CESTAT, New Delhi involved the question of whether a company was liable to pay 8% of the value of exempted products due to the use of modvatable inputs in their manufacture. The Revenue contended that the company had not maintained separate accounts for inputs used in both dutiable and exempted goods, thus necessitating the payment. The Commissioner (Appeals) had set aside the original order, but the Revenue argued that the company should pay the 8% amount as per Rule 57AD(2) of the Central Excise Rules, 1944. On the other hand, the company's representative argued that they had reversed the Cenvat credit proportionately for inputs used in exempted products, citing relevant legal provisions and a previous case decision.Upon considering the arguments, the Tribunal referred to Rule 57AD of the Central Excise Rules, which mandates separate accounts for inputs used in both dutiable and exempted goods. Since the company had not maintained these separate accounts, they were held liable to pay 8% of the price of the exempted final products. The Tribunal clarified that the Board's Circular dated 16-10-2001 did not provide an alternative to Rule 57AD but rather outlined procedures for reversing Modvat credit. The Tribunal ruled that the company must pay the 8% amount, but agreed with the company's representative that no penalty should be imposed as the issue revolved around the interpretation of Rule 57AD. Consequently, the appeal was disposed of with the company being directed to pay the required amount.