TaxTMI 
TaxTMI 
2009 (5) TMI 694
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.... IV(16)Enquiry/Div-II/AE/15/2007/1041, dated 8-5-2008 (in short, SCN) issued by the Commissioner of Central Excise, Delhi-IV, Faridabad (hereinafter referred to as the Revenue). 2.1 The facts in brief are that the applicant is engaged in the manufacture of a number of bulk drugs. All the bulk drugs except Quinine manufactured by the applicant were dutiable. Acting on an intelligence that applicant was using common inputs in the manufacture of dutiable and exempted products but was not maintaining separate records in respect of the exempted goods, Central Excise Officers of Anti-Evasion Branch, Faridabad initiated investigations by searching the factory premises of the applicant-company on 25-10-2007 and resuming certain records. 2.2 During investigations, Shri S.M. Bhatnagar, Store Incharge of the applicant-company in his statement recorded under Section 14 of the Act, inter alia stated that he was working as storekeeper for the last 11 years; that it was his responsibility to receive raw material and issue the same to different plants; that he sent the purchase bills to Shri Shyambir with instructions to avail Cenvat credit; that he reported to Shri Sunil Malik, G.....
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....ise Incharge for taking Cenvat credit on various inputs and that he also gave directions to not to take Cenvat credit on those inputs which was used in the manufacture of quinine and sold in the domestic market. 2.4 In his subsequent statements Shri Sunil Malik admitted that certain invoices had been entered in the stock registers meant for production of final products other than quinine and the goods corresponding to them were used in the manufacture of quinine that they had used certain quantities of raw material on which Cenvat credit was taken in the manufacture of quinine; and that there was no difference in the quality of quinine sold in the domestic market and removed for export and the process of manufacture for both was the same. He also submitted a chart prepared on the basis of calculations based on record showing the credit taken on the inputs used in the manufacture of quinine removed for domestic consumption during the periods from 2004-05 to 2007-08 (up to October, 2007). He further stated that they have not maintained separate accounts for 2003-04 and that they started maintaining separate records from 2004-05 onwards. 2.5 The investigation revealed ....
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....indings of the investigations carried out, a Show Cause Notice C. No. IV(16) Enquiry/Div-II/AE/15/2007/1041, dated 8-5-2008 was issued to the applicant and co-applicants 1 and 2 whereby an amount of Rs. 2,40,23,173/- was demanded, which was 8%/10% of the value of exempted goods removed by them for home consumption, on the ground that they were not maintaining separate accounts of the inputs used in the manufacture of dutiable and exempted finished products. Interest and penal provisions were also invoked in the SCN. 3. The applicant-company in its settlement application has, inter alia, submitted that : (i) The facts as brought forth in the SCN are incomplete and, therefore, do not present a correct picture in so far as the maintenance of record was concerned. The records as were being maintained enable clear quantification of inputs used in the manufacture of exempted goods as well as the quantum of credit, wherever taken, in respect of such inputs. (ii) In order to ensure proper appreciation of the facts pertaining to the maintenance of the records, the inputs involved in the manufacture of exempted goods i.e. quinine ....
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....to the provisions of Rule 6(1) that is to ensure that the credit is either not taken in respect of the inputs used in the manufacture of exempted goods or if it is taken, its effect is neutralized by payment of 8%/10% of the value of the exempted goods. (v) Thus, Rule 6(2) and Rule 6(3) constitute the machinery or procedural provisions for fulfilling the objective of Rule 6(1), which is to ensure that the Cenvat credit is not taken for the inputs used in the manufacture of exempted goods. The introduction of Rule 6(3)(ii) in the Cenvat Credit Rules, 2004, which provides for the payment of credit taken in respect of goods and services utilized in the manufacture of exempted goods computed on pro rata basis, supports this contention. (vi) The fundamental rule of construction regarding a machinery provision is that they should not be subjected to a rigorous construction but should be interpreted in a way that makes the machinery workable. They are to be construed in a manner that would advance the object behind the provisions. In interpreting the machinery sections an undue harsh interpretation against the assessee is avoided and the benefit o....
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....preted in a manner that they do not create a liability against an assessee in excess of the objective of Rule 6(1). (vii) The intention of the legislature is to ensure that the credit in respect of inputs used in the manufacture of exempted goods should not be taken and accordingly the credit incorrectly taken is deniable and recoverable. This is apparent from the fact that there are no machinery provisions for the recovery of amount payable in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. In this regard the following decisions of the Tribunal are relevant and are being relied upon. (a) CCE, Aurangabad v. Terna SSK Ltd. - 2007 (209) E.L.T. 194 (Tri). A copy of the decision is enclosed and marked as Annexure-10. In the case it was held that : "...The issue is reversal of '8% amount under Rule 57CC' which is neither duty nor credit of Modvat. There is no machinery provision under Rule 57CC to affect the recovery of such amount. The assessee has reversed the same and Revenue should accept the same as there is no dispute on quantification. The reversals show the bona fide of the assessee". (b) CCE, Hyderabad-IV v. Jay Engineering Works (Unit SF II) - ....
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....A89 (S.C.). A copy thereof is enclosed and marked as Annexure-14. (viii) According to the Rule 14 of the Cenvat Credit Rules, 2004, Cenvat credit taken or utilized wrongly is recoverable. The payment of credit wrongly taken and the interest thereon, in such circumstances, has been regarded as a proper discharge of liability. In this regard the following decisions are relevant and are being relied upon (a) Satyakala Agro Oil Products Ltd. v. CCE, Guntur - 2008 (223) E.L.T. 441 (Tri). A copy of the decision is enclosed and marked as Annexure-15. In this case it was held that : "...In the present case, it is not in dispute that the appellant had reversed the entire credit along with interest attributable to the exempted products. Therefore, following the ratio of the Chandrapur Magnet wires case (supra), we hold that the appellants had not taken any credit at all in view of the reversal. If it is held that the appellants had not taken any credit of the inputs used in the exempted product, then rude 6 would not be applicable. If Rule 6 is not applicable, the appellant is not required to pay 8% or 10% of the sale va....
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.... terms of sub-rule (1) the assessee shall not be allowed credit on such quantity which is used in the manufacture of exempted goods. Consequently, where the assessee has not paid the amount, the availment of corresponding credit on inputs is incorrect. The recovery of such credit taken incorrectly is squarely covered by the provisions of Rule 12 (erstwhile Rule 57-I). Necessary action may be taken accordingly". 4. The applicant has given details of manner in which it has computed its liability to pay duty. They have given year-wise details of the inputs consumed by them in the manufacture of exempted goods and according to them the excess credit taken by them works out as under: (i) The details in respect of solvents for the period 2003-04 The details with regard to incorrect availment of credit of duty paid on toluene, activated carbon, hyflo and acetone are enclosed and marked as Annexure-17A, Annexure-17B, Annexure-17C and Annexure-17D respectively. No credit was taken in respect of ammonia solution and ammonia gas cylinder in this period. These details indicate that: (a) 2,09,752.040 kgs. toluene were used in relation to the manufac....
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....f is Rs. 2,168/-. (h) 5.733 kgs. of Printed Polybag 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 43/-. (i) 161.305 kgs. of Printed Polybag 27 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,168/-. (iii) The details in respect of the solvents for the period 2004-05 The details in respect of Toluene, Activate Carbon, Hyflo, Aceton, Ammonia Solution and Ammonia Gas Cylinder are enclosed as Annexure-19A, Annexure-19B, Annexure-19C, Annexure-19D, Annexure-19E and Annexure-19F respectively. These details indicate that :- (a) In the period 1,80,510 kgs. of Toluene was purchased 1,55,915 kgs. was recorded in the stock register meant for exempted goods and out of this quantity the credit was taken only in respect of one invoice for the purchase of 10,195 kgs. The credit thus wrongly taken was only Rs. 69,316/-. (b) In the period 20,514 kgs. of Activated Carbon was purchased, 16,954 kgs. was recorded in the stock register meant for exempte....
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....espect thereof is Rs. 502/-. (c) 30 drums of 30 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 447/-. (d) 2 drums of 20 ltrs. were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 38/-. (e) 1.235 kgs. of polybags 9 x 12 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,119/-. (f) 151.546 kgs. of polybags 12 x 15 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,119/-. (g) 27.6 kgs. of polybags 15 x 18 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 180/-. (h) 3.904 kgs. of polybags 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 27/-. (i) 3108.76 kgs. of polybags 24 x 48 were used in relation to the manufacture of exempted goods....
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....us wrongly taken was only Rs. 63,410/-. (e) In the period 1,15,480 kgs. of Ammonia Solution was purchased, 95,880 kgs. was recorded in the stock register meant for exempted goods. No credit was taken in respect of the goods recorded in the stock register meant for exempted goods. (f) In the period 42,035 kgs. of Ammonia Gas Cylinder was purchased and no credit was claimed in respect thereof. 37,663.5 kgs. was issued for the manufacture of exempted goods. (vi) The details in respect of the packing material for the period 2005-06 The details evidencing the incorrect availment of credit with regard to packing material i.e. Drum 65 ltrs, HDPE Drum 30 ltrs, Polybag 9 x 12, Polybag 12 x 15, Polybag 18 x 36, Polybag 24 x 48, LDPE Bag 27 x 48, Printed Polybag 18 x 36, Printed Polybag 24 x 48 and Printed Polybag 27 x 48 used in related to manufacture of exempted goods is enclosed and marked as Annexure-22A, Annexure-22B, Annexure-22C, Annexure-22D, Annexure-22E, Annexure-22F, Annexure-22G, Annexure-22H, Annexure-22-I and Annexure-22J respectively. These details indicate that :- (a) 999 dr....
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....ant for exempted goods and no credit was taken. (c) In the period 11,008.800 kgs. of Hyflo was purchased, 1,696 kgs. was recorded in the stock register meant for exempted goods and out of this quantity the credit was taken in respect of one invoice for the purchase of 590.200 kgs. The credit thus wrongly taken was only Rs. 2,051/-. (d) In the period 43,652 kgs. of Acetone was purchased, 4,760 kgs. was recorded in the stock register meant for exempted goods on which the credit amounting to Rs. 39,592/- was wrongly taken. (e) In the period 78,676 kgs. of Ammonia Solution was purchased, 61,311 kgs. was recorded in the stock register meant for exempted goods out of which credit was taken in respect of the three invoices for 8,858 kgs. The credit thus wrongly taken was Rs. 10,881/-. (f) In the period 26827.75 kgs. of Ammonia Gas Cylinder was purchased 24898.75 kgs. was recorded in the stock register meant for exempted goods. No credit was taken in respect of the quantity purchased in this period. (viii) The details in respect of the packing material for t....
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....vents for the period 2007-08 The details in respect of Toluene, Activate Carbon, Hyflo, Acetone, Ammonia Solution and Ammonia Gas Cylinder are enclosed as Annexure-25A, Annexure-25B, Annexure-25C, Annexure-25D, Annexure-25E and Annexure-25F respectively. These details indicate that :- (a) In the period 40,842 kgs. of Toluene was purchased, 22,105 was entered in the stock register meant for exempted goods out of which credit was taken in respect of one invoice for 12,140 kgs. The credit thus wrongly taken was Rs. 77,692/-. (b) In the period 5,810 kgs. of Activated Carbon was purchased, 1610 kgs. was recorded in the stock register meant for exempted goods and no credit was taken. (c) In the period 6696.500 kgs. of Hyflo was purchased, 567.500 kgs. was recorded in the stock register meant for exempted goods and no credit was taken. (d) In the period 24,770 kgs. of Acetone was purchased, 8,800 kgs. was recorded in the stock register meant for exempted goods out of which the credit in respect of one invoice for 2,400 kgs. was taken. The credit thus wrongly taken was Rs. 2....
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....credit involved in respect thereof is Rs. 96/-. (i) 0.474 kgs. of Printed Polybag 18 x 36 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 4/-. (j) 0.840 kgs. of Printed Polybag 24 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Nil. (k) 114.549 kgs. of Printed Polybag 27 x 48 were used in relation to the manufacture of exempted goods and credit involved in respect thereof is Rs. 1,770/-. 5.1 The applicant-company has submitted that from the aforestated position it follows that they took credit of Rs. 10,02,390/- on solvents and packing materials used in relation to the manufacture of exempted goods in the period from 2003-04 to 2007-08 (up to 25-10-2008). The exempted products manufactured in this period were also exported. In respect of the exported exempted goods, the credit of duty paid on inputs used in the manufacture thereof is admissible. This position is accepted in the SCN as the liability of the applicant-company has been computed by taking the value of exempt....
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....3. The statement of aggregate of interest liability is enclosed and marked as Annexure-29F to the settlement application. The total interest liability thus works out to Rs. 4,31,450/-. 8. On the issue of the eligibility, the applicant-company has stated that they meet the requirements of Section 32E of the Act inasmuch as the company is registered with Central Excise Department, the amount of duty liability admitted by them exceeds Rs. 3 Lakhs, they are filing monthly returns and they have maintained proper accounts of the impugned inputs. 9. The applicant-company and co-applicants 1 and 2 have also prayed in the application that they may be given immunity from prosecution under the Central Excise Act, 1944 and imposition of penalty as proposed in the SCN. 10. In response to the notice issued under Section 32F(1) of the Act, the applicant-company informed that they meet all the requirements of Section 32E of the Act and the bar under Section 32-O of the Act is not applicable as the applicants have not filed any settlement application before the Commission in the past except for the present applications thereof. 11. The settlement applications were al....
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....unt of the exempted products cleared from the factory manufactured by using such inputs. It is undisputed, in this case that the demand is for 10% of the amount of value of exempted product cleared from the factory premises of the appellants. To my mind, the said confirmation of demand is correct and does not required any interference as the appellants have not maintained separate inventory of the inputs used in the manufacture of exempted products.' Similarly in the matter of Nirmal Industries v. CCE., Coimbatore [2008 (227) E.L.T. 529 (Tri.-Chennai)] the Tribunal has confirmed the demand observing as under :- "The appellant has not established that he had followed the procedure prescribed in Rules 6(3) of the CCR, 2001. Commissioner (Appeals) found that the appellant kept invoices relating to purchase of goods for the two streams but did not maintain separate accounts as required under erstwhile Rule 57AD of CER/Rule 6(3) of Cenvat Credit Rules, 2001 (CCR). The respondents have not advanced any evidence to controvert the finding of the Commissioner (Appeals) that they had not maintained separate accounts of common inputs as required under the provisions of erstwhile Rule 57....
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....ucts and credit taken was reversed on quantity of inputs issued for manufacture of exempted products, the requirement of Rule 6(2) of the Cenvat Credit Rules was met with. On pointing out by the Bench that in both these cases the credit was held to be reversible before clearance of the final products, ld. Advocate cited the Allahabad High Court Judgment reported at 2004 (174) E.L.T. 422 (All.), which was relied upon by the CESTAT in the case reported at 2008 (228) E.L.T. 452 (Tri.-Chennai) holding that :- "Before us the appellants have argued that once the entire credit taken on common inputs is reversed there was no need for the assessee paying any amount to offset such credit taken, in terms of Rule 57CC. The penal consequences for using common inputs resulted from taking credit of duty paid on them. Ld. Counsel for the appellants submitted that the High Court of Judicature at Allahabad had held that in Hello Minerals Water (P) Ltd. v. UOI [2004 (174) E.L.T. 422 (All.)] that exemption benefit available subject to not taking the input credit was available to the assessee if the credit taken was reversed subsequent to removal of final products. In CCE, Mumbai-VI v. Philips India....
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.... present case the total amount of Cenvat credit availed on the common inputs used in the manufacture of dutiable and exempted goods for the years 2003-04 to 2007-08 worked out to Rs. 35,08,581/- whereas the SCN demands from them payment of Rs. 2,40,23,173/- which was totally ridiculous. He further submitted that the applicant-company had an unblemished record and that as regards some discrepancy of invoice numbers pointed out in the SCN, it had occurred due to the fact two numbers were given by suppliers - one was invoice number and the other was challan number. Concluding his arguments the ld. Advocate prayed for settling the duty liability at Rs. 7,18,726/- with interest amount of Rs. 4,31,450/- and for immunity from penalty and prosecution for the applicant and both the co-applicants. 17. The representative of Revenue reiterated the arguments contained in their written submissions and drew the attention of the Bench to CESTAT's decisions reported at 2008 (229) E.L.T. 261 (Tri.-Mumbai) and 2008 (227) E.L.T. 529 (Tri.-Chennai) in the Ghodawat Food International and Nirmal Industries case respectively. He submitted that the case law cited by the applicant was not relevant. ....
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....llection of a new levy as a percentage of the value of the exempted goods in the present case where the records as maintained enable computation of Cenvat credit taken in respect of the exempted goods. It is also not intended to be used as a measure of penalty in cases of an assessee opting not to maintain separate accounts. Sub-rule (3) provides a facility to reduce the burden on the tax payer of maintaining separate accounts, if he wishes to do so and instead pay a percentage of the value of the exempted goods, as a measure of simplification. Bench, therefore, in this case sees no inappropriateness in applying the ratio of the decision of CESTAT in Pepsico's case as mentioned above. 19. The Bench observes that the applicant-company has made full and true disclosure of its duty liability and co-operated in the proceedings before the Bench. In the facts and circumstances of the case, the Bench finally settles the case under Section 32F(5) of the Act subject to the following terms and conditions: - Central Excise Duty : - The Central Excise duty liability (including the credit of Education Cess taken by the applicant) in this case is settled at Rs. 7,18,726/-. The amount ....