TaxTMI 
TaxTMI 
TaxTMI 
2013 (3) TMI 117
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....o. 04/2008-C.E., dated 1-3-2008 issued under Section 5A of Central Excise Act, 1944 from payment of Central Excise duty. It also appeared that the manufacturing process of final product indicates that the Menthol Crystals (BP/USP Grade) is the main final product manufactured out of raw materials and hence CENVAT Credit in balance as on 31-3-2008 needs to be reversed by the assessee as per the provisions of Rule 11 of Cenvat Credit Rules, 2004. Coming to such a conclusion. Show Cause Notice was issued to the appellant directing to show cause as to why action should not be taken for confirmation of demand of CENVAT Credit lying in balance as on that date. The assessee contested Show Cause Notice on the various grounds. The adjudicating authority did not agree with the contentions raised by the assessee and confirmed the demands raised, directed them to pay interest on the demand confirmed and also imposed penalty on them. Hence this appeal. 3. The ld. Counsel appearing on behalf of the appellant would submit that the appellants are engaged in manufacture of Menthol Crystals (BP/USP Grade), Peppermint Oil, Menthone, Terpenes etc. It is his submission that though Menthol Cr....
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....n product, regularly and continuously and the same being sold in the open market, the intention of the manufacturer to manufacture and sell not only the main product but also the subsidiary product, cannot be considered as erroneous. It is his submission that the process of manufacture of byproduct which arises is a continuous one and is continuously sold in the market. It is his submission that the provisions of Rule 11(3) of CENVAT Credit Rules, 2004 is not at all applicable as the appellants have followed the provisions of Rule 6(3) of CENVAT Credit Rules, 2004. It is his submission that the provisions of Rule 11(3) of CENVAT Credit Rules, 2004 will be applicable to a case where the manufacturer is manufacturing "a final product", which is exempted from payment of duty. It is his submission that the appellant being a manufacturer of more than one final product and discharging duty liability on other final products and only one final product being exempted, Rule 11(3) cannot be made applicable. It is his plea that in the light of the submissions made, the appeal may be allowed. 4. Ld. Jt. CDR appearing on behalf of the Revenue, would submit that the final product which is m....
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....t in this case is that the appellant was manufacturing Menthol Crystals (BP/USP Grade), Menthol Powder and Peppermint Oil, Menthone, Terpenes etc. From 1-4-08, the appellant's claim is that they have paid an amount equivalent to 8% or 10% of the value of the exempted product i.e. Menthol Crystals (BP/USP Grade), when removed from factory premises. Till 1-4-2008, the appellant was discharging the Central Excise duty liability on all the products manufactured by them. From 1-4-2008, Menthol Crystals (BP/USP Grade) was exempted from payment of duty vide Notification No. 04/2008-C.E., dated 1-3-2008. It is also undisputed that the appellant was manufacturing the above said products by using Menthol Flakes and De-mentholised Oil as main ingredients/inputs, on which the Central Excise duty is paid by the manufacturer and the appellant had taken the CENVAT credit of such duty paid on the inputs as per the provisions of CENVAT Credit Rules, 2004. 7. On this factual matrix, we have to decide the issue involved in this case which is whether the appellant is required to reverse the CENVAT Credit lying in balance as on 31-3-2008 in the CENVAT account for the reason that product Men....
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....ing the process of centrifusion is called mother liquor and is recycled to extract the menthol contents which could not have been extracted during the process. From the detailed flow chart of manufacturing process of Menthol Crystal, it is noticed that at the stage of centrifuging in Centrifuging machine, two intermediate products arises - one is centrifuged crystal and other is uncrystallised solution. While centrifuged crystal are further used to manufacture menthol crystal, the uncrystalised solution is subjected to fractional distillation to recover bye-products, namely, Peppermint Oil, Menthone Oil, Terpenes etc. From the above process of manufacture submitted by the noticee, it is clear that up to the stage of centrifuging in Centrifuging machine when two intermediate products arises i.e. "Centrifuged Crystal" and other is "un-crystallised solution" and "Centrifuged Crystals : are further used to manufacture Menthol Crystal, BP/USP, various inputs such as menthol flakes (containing menthol contents 83% approx) falling under Chapter Heading 29061100 and De-mentholised oil (DMO) containing menthol content 38.4% approx. falling under Chapter Heading 33012590 are exclusively used....
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....es not alter the factual position that exempted goods i.e. Menthol Crystals, BP/USP were manufactured exclusively and independently from the inputs on which the notice had wrongly taken the Cenvat Credit by terming them as the common inputs for both exempted and dutiable goods and by mis-declaring a common process of manufacture for all products." 10. It can be seen from the above reproduced process of manufacture, up to the stage of centrifusion of the materials in the centrifuse machine, 2 intermediate products arises, one is in crystal form and another is uncrystalised solution. That is to say that till this stage of process, the inputs were used by the appellant for manufacturing of all the products and it is seen that the appellant manufactured Peppermint Oil, Menthol Powder, Menthone, Terpenes etc., from uncrystalised solution by process which will amount to manufacture of those products. 11. On this background, the provisions of Rule 6 needs to be read. "Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. - (1) The CENVAT credit shall not be allowed on such quantity of input or input serv....
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....maining part of the financial year. Explanation II. - For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service. (3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :- (a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) description of dutiable goods or taxable services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date o....
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....e of exempted services provided, during the financial year and L denotes total CENVAT credit taken on inputs during the financial year minus H; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year; (d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid; (e) the manufacturer of goods or the provider of....
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....e date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount. be liable to pay interest at the rate of twenty four per cent, per annum from the due date till the date of payment. Explanation I. - "Value" for the purpose of sub-rules (3) and (3A) shall have the same meaning assigned to it under section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under section 4 or 4A of the Central Excise Act, 1944 read with rules made thereunder. Explanation II. - The amount mentioned in sub-rules (3) and (3A), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. Explanation III. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit w....
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....sp; against International Competitive Bidding; or (b) to a power project from which power supply has been tied up through tariff based competitive bidding; or (c) to a power project awarded to a developer through tariff based competitive bidding in terms of Notification No. 6/2006-Central Excise, dated the 1st March, 2006." 12. We are concerned with the provisions of Rule 6(1) on which the Revenue is relying upon to direct the appellant to reverse the CENVAT credit lying in balance as on 31-3-2008, while the appellant is relying upon Rule 6(3), vice which he has reversed an amount of 8% - 10% on the finished goods, which were exempted when cleared. 13. We find that the adjudicating authority in Para 18, had categorically come to the conclusion that the some of the products like Peppermint Oil, etc. were excisable and dutiable. The only question that has been incorrectly construed by adjudicating authority is that according to him, the Menthol Crystals (BP/USP Grade) is the main product and other products were not produced independently, through a separate process of manufacture and were only unintended byproducts obtaine....