Manufacturer wins CENVAT credit dispute over shared furnace for dutiable and exempted goods under Rule 6(1)

CESTAT Allahabad allowed the appeal by remand in a CENVAT credit dispute involving a manufacturer using a single tank furnace for both dutiable and exempted goods. The tribunal held that Rule 6(1) of CENVAT Credit Rules only requires separate accounts for cenvatable inputs, not non-cenvatable inputs or separate storage. Using a common furnace is not a legal objection. The demand for 8% payment on exempted goods value cannot be sustained, particularly given Rule 6(3) amendments permitting proportionate credit reversal. The appellant's claim of maintaining separate records for common inputs requires verification. The matter was remanded to the original authority for fresh consideration of the appellant's documentary evidence.

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Issues Involved:
1. Demand for payment of Rs. 3,03,68,017/-.
2. Recovery of interest u/s 11 AB of the Central Excise Act, 1944.
3. Imposition of penalty under Rule 15 of the CENVAT Credit Rules, 2004.

Summary:

Issue 1: Demand for Payment of Rs. 3,03,68,017/-

The appellant was engaged in the manufacture and clearance of both dutiable and exempted glass products. The department alleged that the appellant failed to maintain separate records for inputs used in the manufacture of dutiable and exempted goods as required by Rule 6 of the Cenvat Credit Rules, 2004. Consequently, a show cause notice was issued demanding Rs. 3,03,68,017/- u/s 6(3)(b) read with Rule 14 of the Cenvat Credit Rules, 2004 for the period July 2005 to March 2010. The appellant argued that they had maintained separate records and referred to a previous favorable decision in a similar case (Naveen Glass Products [Final Order No A/70311/2018-EX (DB) dated 17.01.2018]). The Tribunal noted that the primary issue was whether the appellant maintained separate records for inputs used in exempted and dutiable goods. The Tribunal found that the appellant's claim needed verification and remanded the matter back to the original adjudicating authority for reconsideration.

Issue 2: Recovery of Interest u/s 11 AB

The department demanded recovery of interest on the amount of Rs. 3,03,68,017/- u/s 11 AB of the Central Excise Act, 1944. The appellant contended that the demand was barred by limitation and that the extended period of limitation u/s 11 A had not been invoked. The Tribunal did not make a specific ruling on the interest recovery but remanded the matter for reconsideration along with the principal demand.

Issue 3: Imposition of Penalty under Rule 15

The department imposed a penalty of Rs. 3,03,68,017/- under Rule 15 of the CENVAT Credit Rules, 2004 for contravention of Rule 6(2) and Rule 6(3). The appellant argued that they had maintained separate records and that the demand was not sustainable. The Tribunal, referring to various decisions, noted that if the appellant had indeed reversed proportionate credit along with interest, the situation would be as if no credit was availed. The Tribunal set aside the penalty and remanded the matter for verification of the appellant's claim regarding the maintenance of separate records and reversal of credit.

Conclusion:

The Tribunal set aside the impugned order and remanded the matter back to the original adjudicating authority for de-novo consideration. The adjudicating authority was directed to verify the appellant's claim of maintaining separate records and to re-determine the issues involved within three months from the date of receipt of the order. The appeal was allowed, and the matter was remanded for fresh adjudication.

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