TaxTMI 
TaxTMI 
2026 (6) TMI 397
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....l Crystal, Menthol BP/USP and other flavouring material such as Mentha Piperita Oil, Menthol (liquid), Rectified Spearmint Oil and Menthone. For the purpose of manufacturing the above products, it procured inputs namely Menthol, Dementholised Oil, De-terpenated Fractionated Mentha Oil and Mentha Piperita Oil on payment of duty from manufacturers located in Jammu. The said manufacturers were availing benefit of exemption under Notification No. 56 of 2002-CE dated 04.11.2002 [the Exemption Notification] as amended time to time. Sharp Menthol availed CENVAT credit of the duty paid on the above inputs in terms of rule 12 of CENVAT Credit Rules, 2004. [the 2004 Credit Rules] 4. By a Notification No. 4/2008 dated 01.02.2008, Menthol Crystals and Menthol, which are the final products manufactured by Sharp Menthol, were exempted from payment of central excises duty. Rest of the products manufactured by Sharp Menthol continued to be dutiable. 5. By a Notification No. 10/2010 dated 01.03.2010, the other products namely Menthol Piperita Oil, Menthol (liquid), Rectified Spearmint Oil and Menthone manufactured by Sharp Menthol were also exempted from payment of central excise duty. 6. ....
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....edit Rules. (v) Penalty should not be imposed upon them under rule 15 of the 2004 Credit Rules read with section 11AC of the Central Excise Act, 1944. (emphasis supplied) 12. The second show cause notice dated 06.04.2010 called upon Sharp Menthol to show cause as to why: (i) Rs. 3,00,85,834/- should not be recovered from them, being an amount of 10% (up to 07.07.2009) & 5% (from 08.07.2009) of the value of exempted goods cleared in domestic market during the period from March, 2009 to December, 2009 under rule 14 of the 2004 Credit Rules read with rule 6(3) of the 2004 Credit Rules and section 11A of the Central Excise Act, 1944. (ii) Rs. 1,85,55,038/- should not be recovered from them being an amount of 10% (upto 07.07.2009) & 5% (from 08.07.2009) of the value of exempted goods cleared for export during the period from March 2009 to December 2009 under rule 14 of the 2004 Credit Rules read with rule 6(3) of the 2004 Credit Rules and section 11A of the Central Excise Act, 1944. (iii) Interest as applicable on the amount Rs. 4,86,40,872/- (Rs. 300858341/- + Rs. 18555038/-) referred as above should not be demanded from them under section 11AB....
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....8,52,248 16. Sharp Menthol filed detailed replies to the three show cause notices and denied the allegations made therein. Sharp Menthol pointed out that it had maintained separate records for dutiable goods and exempted goods and had not taken any CENVAT credit on any inputs used in the manufacture of the exempted goods cleared for domestic areas. It also contended that the show cause notices should be dropped because in the own case of Sharp Menthol in respect of the Delhi Unit, under identical facts and circumstances, proceedings initiated by the three show cause notices were dropped by order dated 31.08.2009. The said order dated 31.08.2009 passed by the adjudicating authority was challenged by the department before the Tribunal, which appeal was dismissed by order dated 27.11.2014 in Commissioner of Central Excise, Delhi-I vs. Sharp Menthol (India) Ltd. [2015(328)E.L.T.543(Tri-Del.)] and the department did not file any appeal against this order. 17. The Principal Commissioner, by order dated 25.10.2021, dropped the proceedings initiated by the three show cause notices. 18. The issues to be decided were noticed by the Principal Commissioner in paragraph 27 of the order....
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....ntally, has also been accepted by the department. As such, I find that no further ambiguity in the interpretation of the statute remains. 36. In view of the germane construct of the statute by the Hon'ble High Court on various occasions and later by the CESTAT on identical grounds for the same assessee, I find no reason to digress from the findings mentioned thereunder. Since issue has already been settled by Hon'ble CESTAT, New Delhi, I find that the noticee is entitled to avail CENVAT Credit on inputs namely Menthol (Chapter Heading 29061100, exempted w.e.f. 01.03.2008), Dementholised Oil (Chapter Heading 33012590). Since they correctly availed of the CENVAT Credit Rules, 2004 and utilized the same for payment of Central Excise Duty on finished goods, I find that the demands raised under the referred Show cause Notices as mentioned in the Table above do not survive. 37. I also find that it is a settled principle of law that in cases where the original demand is not sustainable, question of recovery of interest and consequential penalty does not arise on the assessee." (emphasis supplied) 22. Shri Bhagwat Dayal, learned authorised representative app....
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....r the respondent Sharp Menthol, however supported the impugned order and made the following submissions: (i) Rule 11(3) of the 2004 Credit Rules does not apply in a case when out of common inputs, more than one final product is manufactured and some final products have become exempt while others remain dutiable. The credit lying in balance as on 01.03.2008 will, therefore, not lapse. In support of this contention, learned counsel placed reliance on the decision of the Tribunal rendered on 31.08.2009 in the matter of Sharp Menthol itself. (ii) The Principal Commissioner correctly dropped the demand of an amount equal to 10%/5% of the value of the exempted final products cleared to domestic area in terms of rule 6(3) of the 2004 Credit Rules; (iii) The contention of Sharp Menthol that it had not availed CENVAT credit on inputs used in the manufacture of exempted goods cleared to domestic area stands confirmed by letter dated 22.10.2008; (iv) In any case, option under rule 6(3) of the 2004 Credit Rules is with the assessee and the department cannot demand 10%/5% of the value of the exempted goods as Sharp Menthol did not exercise any option under ru....
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.... any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported." 27. The show cause notice proposes recovery of an amount of Rs. 6,52,10,065/- shown as pending balance as on 01.03.2008 for violation of rule 11(3) of the 2004 Credit Rules. There is no proposal to demand CENVAT credit attributable to the quantity of inputs in stock or in process or contained in the final product lying in stock. 28. The contention of the department is that the decision of the Tribunal in Sharp Menthol deals with a part of the issue concerning utilization of balance of credit, but the dispute here also involves another aspect regarding requirement of payment of an amount equal to the credit taken, which is attributable to the inputs received for use in the manufacture of the final product and is lying in stock as such or in process or is contained in the final product lying in stock. This contention is beyond the allegations made in the show cause notice as ....
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....n5A(1) of the Central Excise Act. if the words "the said final product" are taken to include its plural, then also for application of this rule, it would be necessary that all the final products become fully exempt from duty. This rule would have no application if from common Cenvat credit availed inputs or input services more than one final product are manufactured products have remained dutiable. In such a situation, the credit in balance can still be utilised for payment or duty on the final products which have continued to be dutiable, as in terms of Rule 3(4)(a) of the Cenvat Credit Rules, 2004. Cenvat credit can be utilised for payment of excise duty on any final product and, Section 11(3) cannot be given an interpretation which is in conflict with the provisions of Rule 3(4). Therefore, on this point, we agree with the finding of the learned Commissioner that Rule 11(3) does not apply to this case." (emphasis supplied) 33. Thus, the CENVAT credit balance as on 01.03.2008 shall not lapse under rule 11(3) of the 2004 Credit Rules. The Principal Commissioner, therefore, did not commit any illegality in dropping the demand. SECOND ISSUE 34. The second issue relates t....
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....have availed Cenvat Credit wrongly, Rule 14 of the Cenvat Credit Rules, 2004 empowered the authorities to recover such credit which had been taken or utilised wrongly along with interest. However, the second respondent did not choose to exercise power under this Rule but relied upon Rule 6(3)(i) and made the choice of the option thereunder for the petitioner, viz., to pay 5%/6% of the value of the exempted services. The statutory scheme did not vest the second respondent with the power of making such a choice on behalf of the petitioner. The Order-in-Original, to the extent that it proceeded on these lines, therefore cannot be countenanced." (emphasis supplied) 40. This Tribunal in Agarwal Metal Works Pvt. Ltd. vs. Commissioner of CGST, Alwar [2022(65)G.S.T.L.372(Tri-Del.)] also held as follows: "14. Thus, the demand of an amount under Rule 6(3) of CCR cannot be sustained even if the appellant was redering exempted services and had taken Cenvat credit on common inputs/input services. The impugned order, therefore, cannot be sustained and is liable to set aside." 41. There is, therefore, no error in the order passed by the Principal Commissioner dropping the demand....
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....,320/- which pertains to the period from 26.05.2010 to 30.09.2010, which is for the period when Notification No. 42/2001-C.E. dated 26.06.2001 was amended by Notification No. 24/2010-C.E. dated 26.05.2010. 49. What needs to be noticed is that the show cause notice did not allege that since the Notification dated 26.06.2001 was amended by Notification dated 26.05.2010 and a specific condition was inserted in the main Notification in not permitting the export of exempted or nil rated goods under bond. It is, therefore, not open to the department to raise this issue in this appeal. 50. In view of the provisions of rule 6(6)(v) of the 2004 Credit Rules, the provisions of rule 6(3) would not be applicable for goods exported under the bond. 51. In this connection, reference can be made to the decision of the Bombay High Court in Repro India. The relevant paragraphs of the decision are reproduced below: "7. It would thus appear that the direction of the respondent No. 2 to the petitioners to pay 10% even though printed books were exported is not legally sustainable. It is only in the event the petitioners does not export the printed goods and do not maintain the account ....
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....ported under bond, Rule 6(6) of the Cenvat Credit Rules, 2004 uses the expression "excisable goods". 52. In the matter of the respondent in Union of India vs. Sharp Menthol India Ltd [2011(270)E.L.T.2012(Bom.)] the Bombay High Court also observed as follows: "27. The argument of the Revenue that in the present case, the credit of duty paid on menthol is not allowable or has lapsed for the reason that the duty paid menthol has been used in the manufacture of exempted menthol crystals cannot be accepted, because, admittedly the exempted menthol crystals have not been cleared for home consumption but have been cleared for export under bond and, therefore, Rule 6(1) to 6(4) of 2004 Rules would not apply, but Rule 6(6)(v) would apply. In other words, non allowability of input credit under Rule 6(1) to 6(4) of 2004 Rules is applicable only when the inputs used in the manufacture of exempted final products are cleared for home consumption without payment of duty and not when exempted final products are cleared for export without payment of duty under bond. In the present case, exempted menthol crystals has been exported without payment of duty under bond and, therefore, the as....