qk- la- by rpad/hand delivery f.no. v.35/15-11/adj /2010 · page 2 of 28 (appeals) rules, 2001. it...
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lhek “kqYd ,oa dsUnzh; mRikn “kqYd vk;qDrky;] dsUnzh; mRikn Hkou] jsl dkslZ] fjax jksM jktdksV-360001 CENTRAL EXCISE & CUSTOMS COMMISSIONERATE
CENTRAL EXCISE BHAVAN : RACE COURSE RING ROAD RAJKOT 360 001
Phone – (0281) 2442030, 2441980, 2441982 Fax – (0281) 2443313, 2452967 Email: [email protected] Qk- la- F.No. V.35/15-11/Adj /2010
By RPAD/HAND DELIVERY
vkns”k dh rkjh[k Date of order
08.11.2012 ewy vkns”k la- ORDER IN ORIGINAL NO. 70/COMMR/2012
tkjh djus dh rkjh[k Date of Issue
09.11.2012
vkns”kdrkZ Ordered by
वी प नाभन vk;qDr
ds-m-“kq- vk;qDrky; jktdksV V. Padmanabhan Commissioner,
Customs & Central Excise, Rajkot.
ds lanHkZ esa In the case of
Santosh Starch Products, Santoshdham, Sukhpar Road, Post: Morgar, Taluka: Bhachau, Dist: Kutch – 370 020
dkj.k crkvks la- ,oa frfFk Show Cause Notice No. & Date
V.35/AR-Khr/Commr/123/2010 dated: 06.05.2010
1. जस य (य ) को यह ित भेजी जाती है, उसे य गत योग के िलए िनःशु क दान क जाती है। This copy is granted free of charge for private use of the person(s) to whom it is sent.
2. इस आदेश से असंतु कोई भी य इस आदेश क ाि से तीन माह के भीतर सीमा शु क, उ पाद शु क एवं सेवाकर अपीलीय यायािधकरण, अहमदाबाद पीठ को इस आदेश के व अपील कर सकता है। अपील सहायक र ज ार, सीमा शु क, उ पाद शु क एवं सेवाकर अपीलीय यायािधकरण,O-20, मेघाणीनगर, यु मे टल हॉ पीटल क पाउ ड, अहमदाबाद-380 016 को स बोिधत होनी चा हए। Any person deeming himself aggrieved by this Order may appeal against this Order to the Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad Bench within three months from the date of its communication. The appeal must be addressed to the Assistant Registrar, Customs, Excise and Service Tax Appellate Tribunal, O-20, Meghani Nagar, Mental Hospital Compound, Ahmedabad-380 016.
3. उ अपील ा प सं. इ.ए.3 म दा खल क जानी चा हए। उसपर के य उ पद शु क (अपील) िनयमावली, 2001 के िनयम 3 के उप िनयम (2) म विन द य य ारा ह ता र कए जाएंगे। उ अपील को चार ितय म दा खल कया जाए तथा जस
आदेश के व अपील क गई हो, उसक भी उतनी ह ितयाँ संल न क जाएँ (उनम से कम से कम एक ित मा णत होनी चा हए)। अपील से स बंिधत सभी द तावेज भी चार ितय म अ े षत कए जाने चा हए। The Appeal should be filed in form No. E.A.3. It shall be signed by the persons specified in sub-rule (2) of Rule 3 of the Central Excise
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(Appeals) Rules, 2001. It shall be filed in quadruplicate and shall be accompanied by an equal number of copies of the order appealed against (one of which at least shall be certified copy). All supporting documents of the appeal should be forwarded in quadruplicate.
4. अपील जसम त य का ववरण एवं अपील के आधार शािमल ह, चार ितय म दा खल क जाएगी तथा उसके साथ जस आदेश के व अपील क गई हो, उसक भी उतनी ह ितयाँ संलगन क जाएंगी (उनम से कम से कम एक मा णत ित होगी)। The Appeal including the statement of facts and the grounds of appeal shall be filed in quadruplicate and shall be accompanied by an equal number of copies of the order appealed against (one of which at least shall be a certified copy.)
5. अपील का प अं ेजी अथवा ह द म होगा एवं इसे सं एवं कसी तक अथवा ववरण के बना अपील के कारण के प शीष के अंतगत तैयार करना चा हए एवं ऐसे कारण को मानुसार मां कत करना चा हए। The form of appeal shall be in English or Hindi and should be set forth concisely and under distinct heads of the grounds of appeals without any argument or narrative and such grounds should be numbered consecutively.
6. अिधिनयम क धारा 35 बी के उपब ध के अंतगत िनधा रत फ स जस थान पर पीठ थत है, वहां के कसी भी रा ीयकृत बक क शाखा से यायािधकरण क पीठ के सहायक र ज ार के नाम पर रेखां कत माँग ा ट के ज रए अदा क जाएगी तथा यह माँग ा ट अपील के प के साथ संल न कया जाएगा। The prescribed fee under the provisions of Section 35 B of the Act shall be paid through a crossed demand draft, in favour of the Assistant Registrar of the Bench of the Tribunal, of a branch of any Nationalized Bank located at the place where the Bench is situated and the demand draft shall be attached to the form of appeal.
7. यायालय शु क अिधिनयम, 1970 क अनुसूची-1, मद 6 के अंतगत िनधा रत कए अनुसार संल न कए गए आदेश क ित पर 5.00 पया का यायालय शु क टकट लगा होना चा हए। The copy of this order attached therein should bear a court fee stamp of Re. 1.00 as prescribed under Schedule 1, Item 6 of the Court Fees Act, 1970. 8. अपील पर भी . 5.00 का यायालय शु क टकट लगा होना चा हए। Appeal should also bear a court fee stamp of Rs. 5.00.
3 F. No: V.35/15-11/Adj/2010 S.C.N No: V.35/AR-Khr/Commr/123/2010 M/s. Santosh Starch Products Order-in-Original No: 70/Commr/2012
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BRIEF FACTS:
M/s. Santosh Starch Products, Santoshdham, Sukhpar Road,
Post. Morgar, Taluka-Bhachau (Kutch) (hereinafter referred to as the
“noticee”) is holding Central Excise Registration No. AACCS 7445
NXM001 and are engaged in manufacture of goods falling under
Chapters No. 11, 17 and 35 of the First Schedule to the Central Excise
Tariff Act, 1985 (5 of 1985) (hereinafter referred to as the “Act”). The
noticee is availing Cenvat credit under the Cenvat Credit Rules, 2004
(hereinafter referred to as “Cenvat Rules”.)
2. The noticee is working under self-assessment procedure as per
Central Excise Rules, 2002 and accordingly assessing the value of the
final products himself and determining the Central Excise Duty thereon,
which is reflected in ER-1 monthly returns. The final product is cleared
under Central Excise invoices as per Rule 11 of Central Excise Rules,
2002 wherein they mention the assessable value of the goods and duty
paid thereon. The noticee is availing the facility of payment of Central
Excise Duty on monthly basis as per Rule 8 of Central Excise Rules,
2002.
3. Whereas, on verification of the records of the noticee during audit
it appeared that the noticee were manufacturing and clearing dutiable as
well as exempted finished goods i.e. Maize starch falling under CETH-11
of the Tariff and clearing the same by availing the benefit of Notification
No.6/2002-CE dated 1/3/2002, as amended. Further, it appeared that
the noticee did not file any option as required under Rule 6(3A) of the
Cenvat Credit Rules, 2004, as amended.
4. Whereas, as per the provisions of Rule 6(1) of Cenvat Credit Rules
2004, the Cenvat credit shall not be allowed on such quantity of input
which is used in the manufacture of exempted goods except in the
circumstances mentioned in sub-rule (2). As per Rule 6(2) of Cenvat
Credit Rules, 2004 such manufacturers shall maintain separate
accounts for the receipt, consumption and inventory meant for inputs
used in taxable as well as exempted final products and take Cenvat
credit only on that quantity of input which is intended for use in goods
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on which duty is payable. However, it appeared from the scrutiny of
records maintained by the noticee that they did not maintain separate
accounts as required under the said Rule. Therefore, the noticee were
required to follow the procedure appended to the provisions made in the
Rule 6(3) of Cenvat Credit Rules, 2004 (substituted vide Notification no.
10/2008- CE (NT) dated 01.03.2008 w. e. f. 01.04.2008) which is as
below:
“(3) Notwithstanding anything contained in sub-rules (1) and (2), the
manufacturer of goods or the provider of output service, opting not to
maintain separate accounts, shall follow either of the following
options, as applicable to him, namely:-
(i) the manufacturer of goods shall pay an amount equal to ten per
cent. of value of the exempted goods and the provider of output
service shall pay an amount equal to eight per cent. of value of the
exempted services; or
(ii) the manufacturer of goods or the provider of output service shall
pay an amount equivalent to the CENVAT credit attributable to
inputs and input services used in, or in relation to, the manufacture
of exempted goods or for provision of exempted services subject to
the conditions and procedure specified in sub-rule (3A).
Explanation I.- If the manufacturer of goods or the provider of output
service, avails any of the option under this sub-rule, he shall
exercise such option for all exempted goods manufactured by him or,
as the case may be, all exempted services provided by him, and
such option shall not be withdrawn during the remaining 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.”
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5. However, clause(i) in Rule 6(3)(i) of the Cenvat Credit Rules, 2004
has been substituted vide Notification no. 16/2009- CE (NT) dated
07.07.2009 as below:
“(i) the manufacturer of goods shall pay an amount equal to five per
cent. of value of the exempted goods and the provider of output
service shall pay an amount equal to six per cent. of value of the
exempted services; or”
6. Whereas, prior to the substitution of above mentioned clause in
Rule 6(3) of the Cenvat Credit Rules, 2004 by Notification No. 10/2008-
CE (NT) dated 01.03.2008, the relevant provision appended to Rule
6(3)(b) of Cenvat Credit Rules, 2004 was follows :
“(b)If the exempted goods are other than those described in condition
(a), the manufacturer shall pay an amount equal to ten per cent. of
the total price, excluding sales tax and other taxes, if any, paid on
such goods, of the exempted final product charged by the
manufacturer for the sale of such goods at the time of their clearance
from the factory”;
7. Whereas, it appeared that the noticee did not file any intimation in
writing with the department for exercising the option available under the
provisions of Rule 6(3) of the Cenvat Credit Rules, towards non-
maintenance of separate records as envisaged in the provisions of Rule
6(2) of the Cenvat Credit Rules, 2004. Therefore, it appeared that the
noticee was availing the Cenvat credit on all the inputs which were used
in the manufacture of dutiable as well as exempted final products but
have failed to pay an amount as required to be paid by them under rule
6(3)(b) of the Cenvat Credit Rules, 2004. Whereas, it appeared that the
noticee was required to pay an amount equal to ten percent of the value
of the exempted goods i.e. Maize Starch, valued at Rs. 27,10,93,949/-
and cleared during the financial years 2005-06 to 2008-09 and 2009-10
(Upto November, 2009), as per Annexure –A attached to the show cause
notice. Therefore, it appeared that the amount of Rs. 4,29,56,306/- as
per Annexure – “A” was liable to be recovered from the noticee along
with interest.
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8. Whereas the noticee has reversed cenvat credit of Rs. 3,76,693/- (
Rs. 2,12,273 vide Cenvat credit entry no. 478/31.3.2009 and Rs.
1,49,375/- vide PLA entry No.10/31.3.2009) availed by them on packing
materials and also cenvat credit of Rs. 21,919/- vide entry no. 271 dated
30.9.2009 availed on ‘sulphur’, one of the inputs used for manufacturing
of maize starch. Whereas, the Board vide Circular No. 739/55/2003-CX
dated 28-Aug-2003 has clarified that “if the conditions of sub-rule (2) of
Rule 6 are not followed, then the question of taking cenvat credit and
subsequently reversing it does not arise at all”. Therefore, it appeared
that the noticee was required to follow the procedure contained in the
provisions made under rule 6(3) of Cenvat Credit Rules, 2004.
9. Whereas, it appeared that the noticee have neither maintained
separate accounts for the receipt, consumption and inventory meant for
inputs used in exempted final products nor have they informed the
department as required under the Cenvat Credit Rules, 2004 and the
same was detected only during audit. The same was also not disclosed by
the noticee in the ER-1 returns filed by them with the department. As
such it appeared that they have suppressed the facts with an intention to
evade payment of amount as required under rule 6(3)(b) of the Cenvat
Credit Rules, 2004.
10. Whereas, it appeared that the noticee have contravened the
provisions of rule 6 of the Cenvat Credit Rules, 2004 inasmuch as they
have failed to maintain separate accounts for receipt, consumption and
inventory of inputs meant for use in the manufacture of dutiable final
products and the quantity of input meant for use in the manufacture of
exempted goods and take Cenvat credit only on that quantity of input
which is intended for use in the manufacture of dutiable goods. Whereas,
it also appeared that the noticee has failed to pay an amount as required
under rule 6(3)(b)(ii) of the Cenvat Credit Rules, 2004. The details of
amount required to be paid by the noticee as per Rule 6(3)(b) of the
Cenvat Credit Rules, 2004 during the period from April, 2005 to
November, 2009 are as per Annexure-A attached to the notice.
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11. Therefore, show causes notice No. V.35/Ar.Khr/Commr/123/2010
dated 06.05.2010 was issued to the noticee, requiring them to show
cause as to why: -
(i) An amount of Rs. 4,29,56,306/- (Rupees Four crore, twenty
nine lac, fifty six thousand, three hundred and six only) (As per
Annexure-A) should not be demanded and recovered from them
under rule 14 read with rule 6(3)(b) of the Cenvat Credit Rules,
2004 and the amount paid by them so far i.e. Rs. 398612/-
should not be appropriated and adjusted against their said
liability;
(ii) Interest at appropriate rate on the aforesaid amount should
not be demanded and recovered from them under Rule 14 of the
Cenvat Credit Rules, 2004 and the amount paid by them i.e. Rs.
5498/- should not be appropriated and adjusted against their
interest liability;
(iii) Penalty should not be imposed upon them under rule 15 of
the Cenvat Credit Rules, 2004 for suppressing the fact that they
are providing exempted services and not maintaining separate
account for the receipt, consumption and inventory for the taxable
service and non-taxable service.
DEFENCE AND PERSONAL HEARING: 12. The noticee submitted reply to the SCN vide their letter dated
29.06.2010 and inter alia, contended that:
(i) It is provided in the retrospective amendment introduced by the
Finance Act, 2010 that the manufacturer may pay an amount
equivalent to Cenvat credit attributable to the inputs and input
service used in or in relation to the manufacturing of exempted
goods before or after the clearances of such goods and for this
purpose, as provided in section 73(2) of the Finance Act, 2010,
the manufacturer shall apply to the Commissioner of Central
Excise for this option alongwith full details of amount
attributable to the Cenvat credit on inputs used in the
8 F. No: V.35/15-11/Adj/2010 S.C.N No: V.35/AR-Khr/Commr/123/2010 M/s. Santosh Starch Products Order-in-Original No: 70/Commr/2012
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manufacture of non-dutiable goods. They have already applied
for the availment of the specified option.
(ii) They are manufacturing Maize Starch, Glucose, Maltose, etc.
Maize Starch is itself the basic product for manufacturing other
finished goods like Glucose, Maltose etc. Therefore, major
quantity of the Maize starch produced is captively consumed in
the factory. However, some portion 15%-20% of the maize
starch produced is also sold by them in the open market as per
the demand. On the maize starch, excise duty is not applicable.
For manufacturing the maize starch, the major input used is
“Corn”, “Sulphur” and packing materials.
(iii) For producing maize starch, maize corn is to be steeped in SO2
water for 50-60 hours. The said SO2 water is prepared from
“Sulphur”. This Sulphur is available in market with some excise
registered dealers and some non-registered dealers. The
quantity purchased on which Cenvat credit has been taken is
163.075 MT and quantity purchased on which Cenvat is not
available is 204.235 MT. As the maize starch is the basic
product for all the excisable finished goods, separate account of
the Sulphur which shows the quantity received and consumed
for exempted goods and consumed for producing excisable
finished goods, are maintained only at the time of issuing the -
+maize starch for producing the excisable finished goods. The
monthly summary showing Sulphur issued for exempted goods
and used in excisable goods and their closing balance are
attached. The summary clearly reveals that the quantity of
cenvatable sulphur is 35.730 MT which is used in
manufacturing the exempted goods. The Cenvat credit on this
quantity comes to Rs. 16,858. However, they are reversing all
the Cenvat availed on sulphur which comes to Rs. 1,88,165/- in
their Cenvat credit account at entry No. 271 dated 30.09.2009.
The interest amount of Rs. 5498/- is also paid by them.
Therefore, they have reversed all the Cenvat related to the
sulphur and complying the rule 6(1) of the Cenvat Credit Rules,
2004, hence, they are not liable to pay the amount as specified
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in rule 6(3) of the said rules. In the catena of judgment, it was
decided that when Cenvat credit is reversed in entirety in
respect of inputs which is used in the manufacture of both
dutiable goods and non-dutiable goods, then the provision of
rule 6(3) cannot be invoked, as the requirement of rule 6(1) had
been sufficed.
(iv) With regard to the packing materials, major packing materials
used are HDPE bag, liner, barrel, etc. all of which are
prominently marked with “MAIZE STARCH”. They have to
maintain separate accounts in respect of the packing materials
for each of their finished goods so that selling activity is not
interrupted for want of packing materials. As their packing
materials have prominent marking of the respective finished
goods, it becomes the base for maintaining separate accounts
for each finished product and hence maintain the account for
receipt, consumption and inventory of the packing materials.
(v) As they have maintained separate accounts for the inputs, i.e.,
packing materials meant for use in the manufacturing of Maize
starch, therefore they have squarely complied with the provision
of the said rule 6(2). As they have maintained separate account
for the receipt, consumption and inventory of the packing
materials, their case cannot be brought under the
consequential liability of sub-rule (3). Further, the explanation
II also clarified that Cenvat credit shall not be allowed on inputs
used exclusively for the manufacture of exempted goods. As
they have paid all the Cenvat credit of Rs. 3,76,693/- related to
the packing materials, they have duly complied with the
Explanation II of the sub-rule (3) also. They relied upon the
judgment of CEGAT, Mumbai in case of M/s. Pushpaman
Forging Vs. CCE, Mumbai-VII.
(vi) Moreover, circular 591/28/2001-CX dated 16.10.2001 also
provided that “It follows from the provisions that if the
manufacturer does not fulfill the requirement of either sub-rule
(2) [i.e. maintaining separate accounts] or sub-rule (3) (i.e.
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paying 8% of total price of exempted goods, other than
exceptions specified in clause (a) then in terms of sub-rule (1)
the assessee shall not be allowed credit on such quantity which
is used in the manufacture of exempted goods”.
(vii) Since there is no amount pending, demand of interest should
also be dropped and further since there is neither any
suppression nor any intention to evade payment of duty, it is
requested to drop the penalty proceeding initiated under rule 15
of the Cenvat Credit Rules, 2004. The demand raised by the
SCN is Rs. 4,29,56,306/- whereas total entire Cenvat credit
taken by them upto the audit period is only Rs. 84.70 lac.
13. Further reply to the SCN was submitted by the noticee vide letter
dated 18.10.2011, wherein, it is, inter alia, contended that:
(i) They are also eligible for the exemption under notification
39/2001-CE dated 31.07.2001, wherein all the duties paid
through PLA are refunded to them. Therefore, they are not
benefited from the non-compliance of rule 6(1) or option as
available in rule 6(3) of the Cenvat Credit Rules, 2004. If they
have taken short Cenvat by restricting the input which are
meant for use in manufacture of exempted goods, their PLA
amount will be increased by the restricted amount and the said
PLA will be refunded to them by the department under
notification No. 39/2001. Therefore, they are not extra benefited
from the said non-compliance. Accordingly suppression with
intent to evade the duty payment is absent in their case.
(ii) The period covered in the SCN is from 2005-06 to 2008-09 and
2009-2010 (upto November 2009) by invoking extended time
period of 5 years. The demand is clearly time barred. The
allegations made in para-9 of the SCN are on wrong footing that
they have suppressed the facts from the department with intent
to evade the amount payable under said rule 6(3)(b) of the
Cenvat Credit Rules, 2004. They have given full information of
their manufactured goods to the department at the time of
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registration as well as registration for the exemption under
notification 39/2001-CE dated 31.07.2001. The Central Excise
teams have visited their premises and taken full details of the
manufacturing process, plant and machinery installed and the
nature of product manufactured as well as nature of inputs
they were going to use. Moreover, they have also disclosed in
monthly ER-1 about manufacturing and clearance quantity as
well as value of clearance of exempted goods namely “Maize
Starch”. Further they have also given full details of the raw
material used in the manufacture of Maize Starch in their ER-6
return. While, there is no column in the ER-1 return where they
have to submit to the department about the inputs meant for
use in exempted goods, the said ER-6 return filled the said
deficiency of ER-1. Therefore, the conclusion that they have not
informed the department about such activity is not supported
by the ground realities.
(iii) At least 2-3 audit parties had also visited their premises earlier
to this audit. The current audit was conducted in 2010 while
earlier audit under EA-2000 was conducted in the year 2009.
Therefore, it cannot be said that they have suppressed any
information about the said activity from the department. The
departmental officer as well as CERA audit team had visited
their premises regularly for audit purpose, therefore, the
allegation of suppression with intent to evade the demanded
amount is not justified.
(iv) The ratio of Cenvat credit on the inputs used in the exempted
goods is too low in their case. The total cumulative Cenvat
credit comes to Rs. 3,98,612/- which is taken on the inputs
used for manufacturing the exempted goods for a period of 5
years. Accordingly Cenvat credit taken per month comes to only
Rs. 6,66.67/- approx. They are paying average 50-60 lakh duty
per month basis through PLA. They have never defaulted in the
said duty payment. They have a clean track record with the
Central Excise as well as Customs department. They are also a
star category exporter. Their turnover for Maize Starch for the
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related period is Rs. 27.10 crore. Considering the facts, it
cannot be said that there is any intentional suppression for
duty evasion. Accordingly, the demand may be set aside on the
limitation ground.
(v) Further, the said Cenvat credit of Rs. 3,98,612/- had been
reversed alongwith interest on the instance of audit party. The
reversal shows that there is no intention to evade the duty
payment.
(vi) Their basic raw material is maize and is steeped by SO2 water
obtained from sulphur. Their main raw material maize is non-
excisable goods and therefore no Cenvat credit had been taken
on this product. For steeping the raw material maize, sulphur
consumption ratio is just 0.3% - 0.4% only per tonne of maize.
This steeped corn is further grinded to obtain maize slurry. The
slurry is basic material for every final product. Therefore, for
manufacturing exempted goods, i.e., maize starch, they used
two types of materials on which they avail Cenvat credit, viz.,
sulphur and packing material. The raw material sulphur is
used for preparing SO2 water which in turn is used for steeping
the raw maize/corn though which the basic product maize
slurry is obtained. The slurry is basic material for
manufacturing modified starch, liquid glucose (LG), Malto
Dextrime Powder (MDP) and Maize Starch. Each product
required specified quantity of slurry and on that basis, slurry
consumed in manufacturing of excisable and non excisable
product has been calculated and quantity of sulphur used is
bifurcated. Further, consumption of packing material, viz.,
HDPD/PP/Paper Bags of 25/50 Kgs standard can be easily
identified on the basis of marks mentioned on the bags as well
as quantity sold.
(vii) They have taken total Cenvat credit on sulphur of Rs.
1,88,165/- and on packing material of Maize Starch, Rs.
3,76,693/- for the period under consideration. Out of these
Cenvat credits taken, they have reversed total Rs. 3,76,693/- on
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packing material as well as Rs. 21,919/- on sulphur used for
manufacturing the maize starch was paid alongwith interest
when point was raised by the excise audit party. However, for
this Cenvat taken and already reversed amount, the demand
was raised for Rs. 4.27 crore which itself shows that the
demand is not justifiable with respect of Cenvat credit taken.
(viii) They have also applied for the proportionate reversal of Cenvat
credit as per provision of section 73(2) of the Finance Act, 2010
wherein retrospective amendment was given in the rule 6(7) of
the Cenvat Credit Rules, 2004. They have not taken any Cenvat
credit after the period for which the SCN was issued.
14. Personal hearing in the matter was held on 12.09.2012, which was
attended by authorized representative of the noticee. He requested to
consider their application filed under section 73 of the Finance Act, 2010
while deciding the SCN. He also stated that they had exported a
substantial quantity of finished goods, which are excluded from rule 6 of
Cenvat Credit Rules, 2004. They would provide details of export within
seven days.
The details of exports of exempted product made by the noticee
during relevant period was provided vide their letter dated 15.10.2012.
DISCUSSION AND FINDINGS: 15. I have carefully gone through the entire case records, defence put
forth in writing as well as contentions raised during personal hearing. I
find that the limited issue to be decided in the present case is – whether
the noticee is required to pay an amount under rule 6(3) of the Cenvat
Credit Rules, 2004, when they were using common inputs for dutiable as
well as exempted final products and not maintaining separate records?
16. The facts which are not in dispute are that the noticee is engaged
in manufacture and clearance of goods, some of which are dutiable and
one product – Maize Starch is exempted. During the period from 2005-06
to 2009-10 (upto Novermber-2009), the noticee availed credit on inputs
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which were commonly used for manufacture of dutiable as well as
exempted product, however, no separate account of the inputs were
maintained. The SCN alleges that since the noticee has not maintained
separate accounts of inputs used in dutiable final products and
exempted final product, they have to pay an amount equal to 5/10% of
the value of the exempted final product as per rule 6(3) of the Cenvat
Credit Rules, 2004. The noticee contends that there are two inputs which
were used commonly for dutiable final products as well as exempted final
products, viz. Sulphur and packing material. However, since they have
reversed total amount of Cenvat credit taken on packing material (Rs.
3,76,693/-) and proportionate Cenvat credit on Sulphur (Rs. 21,919/-),
they are not required to follow rule 6(3) of the Cenvat Credit Rules, 2004.
It is also contended that they have maintained separate accounts of raw
material as per rule 6(2) of the Cenvat Credit Rules, 2004 and therefore
also, their case does not fall within the ambit of rule 6(3) of the Cenvat
Credit Rules, 2004.
17. It is contended by the noticee that the first product being
manufactured in the production line is Maize Starch and it is used for
further manufacture of other dutiable products. That Sulphur is the raw
material used for manufacture of Maize Starch and such sulphur is
procured by them either on payment of duty from registered dealers or
without payment of duty from other dealers. It is contended that they
have used 35.730 MT of sulphur for manufacture of exempted goods, on
which Cenvat credit comes to Rs. 16,858/-, however, they have reversed
Cenvat credit to the tune of Rs. 21,919/-. That they have maintained
separate account of the sulphur at maize starch stage as at that stage
either it is cleared for home consumption or issued for further
manufacture. Regarding packing material, it is contended that the
packing material meant for exempted product is clearly marked as
“Maize Starch” and therefore, separate records is maintained. Moreover,
they have reversed the total credit availed on packing material, with
interest, which tantamount to not taking of Cenvat credit. In this regard,
I find that the account for use of sulphur in manufacture of exempted
product is produced by the noticee, which is based on reverse calculation
method. Since at the time of preparing the slurry, where sulphur is
added to water and corn is steeped in this mixture, it is not known what
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amount of maize starch will be cleared for home consumption and what
amount of maize starch will be used captively for further manufacture of
dutiable goods, the separate account submitted now is based on the
figures of captive use of maize starch and clearance of maize starch. This
cannot be termed as maintenance of separate account. Rule 6(2) of the
Cenvat Credit Rules, 2004 clearly stipulates that a manufacturer of
dutiable and exempted products, using common inputs, have to
maintain separate accounts for receipt, consumption and inventory of
inputs. However, in the present case, the accounts were not maintained,
as mandated but the accounts are created based on figures of clearances
and captive consumption. Therefore, this cannot be said to be
compliance to rule 6(2) of the Cenvat Credit Rules, 2004. Regarding
packing material, it is contended that since packing material meant for
maize starch is clearly marked with the name of final product, they have
kept separate account. However, rule 6(2) mandates maintenance of
separate account from receipt stage itself and it is also provided that the
Cenvat credit pertaining to raw material meant for exempted product is
not to be taken. However, it is an admitted fact that the noticee had
taken the Cenvat credit pertaining to packing materials meant for
exempted final product also. Merely because the packing material meant
for exempted product was identifiable does not mean that separate
account was maintained for the same. Therefore, this cannot be treated
as sufficient compliance to rule 6(2) of the Cenvat Credit Rules, 2004.
18. Regarding reversal of credit with interest amounting to not taking
of credit, I find that the noticee has reversed total credit pertaining to
packing material only and not done so in case of Sulphur. In case of
sulphur, proportionate credit is only reversed. Since neither rule 6(1) nor
rule 6(3) of the Cenvat Credit Rules, 2004 provide that total reversal in
case of one common input and partial/proportionate reversal in case of
other product would suffice the requirement of rule 6 of the Cenvat
Credit Rules, 2004, such reversal cannot be considered as fulfillment of
obligation of the noticee under rule 6 of the Cenvat Credit Rules, 2004.
Even if there is one input used by an assessee commonly for
manufacture of dutiable and exempted products, rule 6(3) would come
into picture, if rule 6(2) of the Cenvat Credit Rules, 2004 is not followed
by that assessee. Therefore, I find that sulphur being common input, for
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which only proportionate reversal is made by the noticee, this argument
is of no help to them. I find that Hon. Supreme Court has, in the case of
CCE, Nagpur Vs. Ballarpur Industries Ltd. - 2007 (215) E.L.T. 489 (S.C.)
Held that:
Cenvat/Modvat - Stock transfer of pulp which was consumed as
raw material in the manufacture of paper by sister unit of
assessee - Applicability of Rule 57CC of erstwhile Central Excise
Rules, 1944 in absence of sale - Rule 57CC ibid is a provision
which seeks to recover presumptive amount @8% of price of
exempted final goods at the time of removal for sale - Rule
applicable to stock transfers also - Rate of 8% is the measure to
calculate the presumptive sum - Entire rule is based on “deemed
price” and “recovery of presumptive amount” hence, the words
“price charged at the time of sale” must be read as “eight per cent
of the value of exempted goods” - C.B.E. & C.’s Circular No. B-
42/1/96-TRU, dated 27-9-1996 relied - Tribunal’s order set aside
- Rule 6 of Cenvat Credit Rules, 2004. [paras 14, 15, 17, 19].
In another case of CCE, Thane-I Vs. Nicholas Piramal (India) Ltd. -
2009 (244) E.L.T. 321 (Bom.), it is held by Hon. High Court that:
Cenvat/Modvat - Inputs, common inputs used in dutiable and
exempted goods - Tribunal Larger Bench not right in allowing reversal of credit on inputs instead of payment of 8% or 10% of price of exempted goods as per rules - Rule 57C
or Rule 57CC of erstwhile Central Excise Rules, 1944 not
considered by Supreme Court in 1996 (81) E.L.T. 3 (S.C.) and
ratio therein not applicable to construe Rule 6 of Cenvat Credit
Rules, 2002 (now Rule 6 of Cenvat Credit Rules, 2004) -
Hardship in maintaining accounts or following rule not makes
rule absurd or unjust - Difficulty realized and presumptive tax
provided in rules - Rule 6(2) ibid mandatorily applicable once
dutiable and exempted final products manufactured from
common inputs and credit can be availed only in terms of Rule
6(3) ibid - Credit admissible only as per method prescribed and
assessee not having choice of claiming or reversing credit -
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Impugned order holding payment of 8% or 10% amount not
required if credit reversed on inputs used in exempted goods, not
agreed with - Rule 57CC of erstwhile Central Excise Rules, 1944.
- If however an assessee can reverse the credit on the final
product, before the goods are taken out of the factory, we fail to
understand why on the same basis it is not possible to maintain
records of the very same inputs which are used in the
manufacture of final products at an intermediate stage... The rule
making authority however noting that inputs may be used both
for manufacturing final products which may be dutiable and
other final products which are exempt, has provided that such
manufacturer will be given credit in so far as inputs used for
manufacturing of dutiable goods, if accounts are maintained in
terms of the rules. Therefore merely because the assessee
contends that he is willing to forego credit on inputs used in the
manufacture of exempted final product does not warrant a
departure from the requirements of Rule 6(2) and 6(3). The rules
contemplate that on failure to maintain accounts in terms of Rule
6(2) the consequences would be in terms of Rule 6(3)(a) or (b).
[paras 1, 14, 19, 21, 22, 24, 27, 31, 32]
Cenvat/Modvat - Method for availing credit - Method prescribed
under Rule 6(3)(b) of Cenvat Credit Rules, 2002 (now Rule 6 of
Cenvat Credit Rules, 2004) contended as not the only method of
providing compliance with sub-rule (1) of Rule 6 ibid - Court
cannot read in rule something different or render otiose the words
therein - Following sub-rule (2) ibid is the only method when
Cenvat credit sought to be availed on inputs used in exempted
goods - Language in Rule 6(1) ibid not grants credit except in
circumstances mentioned in sub-rule (2) ibid - Rule mandatory
and not directory - Once law itself laid down the circumstances
under which credit can be availed, it is that method by which the
credit can be availed - Rule 57CC of erstwhile Central Excise
Rules, 1944. - It is not open to an assessee to contend that
because the have chosen not to maintain the records as required,
revenue authorities even against the grain of the language of the
rule, must estimate the inputs used in the manufacture of final
dutiable products and accordingly, pass necessary orders. It is
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also not possible to accept the contention that because they are
familiar with the procedure of ascertaining the amount of credit,
that by itself makes rule 6(3)(b) directory. [paras 25, 27, 28, 31]
Cenvat/Modvat - Inputs, common inputs used in dutiable and
exempted goods - Sub-rule (3) of Rule 6 of Cenvat Credit Rules,
2002 (now Rule 6 of Cenvat Credit Rules, 2004) contended as
attracted only when sub-rule (1) of Rule 6 ibid not opted to be
complied with by reversing credit - Rule to be read together to
understand object - Rule 6(2) ibid applicable once dutiable and
exempted final products manufactured from common inputs -
Credit can be availed only in terms of Rule 6(3) ibid. [para 19]
Cenvat/Modvat - Inputs, common inputs used in dutiable and
exempted goods - Option to pay 8% or 10% under Rule 6(3) of
Cenvat Credit Rules, 2002 (now Rule 6 of Cenvat Credit Rules,
2004) contended as not available to goods covered by Rule 3(a)
ibid - Rule 3 ibid not relevant in interpreting Rules 6(1) and 6(2)
ibid. [para 20]
Cenvat/Modvat - Inputs, common inputs used in dutiable and
exempted goods - Demand of 8%/10% while credit reversed on
inputs used in exempted goods - Submission that pro rata credit
statutorily provided in Cenvat Credit Rules, 2004 w.e.f. 1-4-2008
and that principles and basis enshrined applicable for past
period as rules of procedural law - HELD : Rules in force
applicable - Rules subsequently made cannot be made
retrospective unless so provided - Rule 6 of Cenvat Credit Rules,
2002/2004. [para 30]
Interpretation of statute - Rules, prospective nature - Once there
be rules in force, it is those rules which are applicable - Rules
subsequently made may be as result of experience cannot be
made retrospective unless so provided. [para 30]
Interpretation of statutes - Hardship, relevance in construction of
rule - Hardship cannot result in giving a go-by to language of the
rule and making rule superfluous - Assessee to represent to rule
making authority pointing out defects - Court in the guise of
interpretation cannot take upon task legislative function -
Difficulties in few cases cannot result in departing from normal
rule of construction. - The rule must ordinarily be read in its
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literal sense unless it gives rise to an ambiguity or absurd
results. [paras 21, 22, 23]
Statutory provisions - Test of reasonableness - Cenvat/Modvat -
Assessee contending that difficulty in maintaining accounts when
intermediate goods also manufactured and common inputs used
in dutiable and exempted goods manufactured - Difficulty
realized by Finance Minister and presumptive tax provided in
Rule 57CC of erstwhile Central Excise Rules, 1944 and continued
in Rule 6 of Cenvat Credit Rules, 2002/2004. - Merely because
an assessee contends and it may be factually true that in some
instances the rule cannot be followed in the manner of
maintaining accounts that cannot be said to be a tool of
oppression to extract that amount which is beyond the remedial
measure. [para 23]
Statutory provisions - Rules when not absurd or unjust - Not
possible for Legislature to conceive every possible difficulty -
Provision or rule can occasion hardship to a few, that cannot
result in rule being considered as absurd or manifestly unjust. -
Hardship or breaking down of the rule even if it happens in some
cases by itself does not make the rule bad unless the rule itself
cannot be made operative. [para 21]
After going through the above elaborative judgment of Hon. High
Court, it is clear that when separate records are not maintained from
receipt stage upto inventory stage, it is mandatory to pay the amount
specified in rule 6(3) of the Cenvat Credit Rules, 2004 and there is no
other alternative available to the noticee.
19. The noticee has further contended that since they have complied
with the Explanation II of the sub-rule (3), the demand is not
sustainable. They have also relied upon the judgment of Hon. Tribunal in
the case of M/s. Pushpaman Forging Vs. CCE, Mumbai-VII - 2002 (149)
E.L.T. 490 (Tri. - Mumbai). In this regard, I find that the said explanation
pertains to the inputs used exclusively for manufacture of exempted
goods. It is the contention of the noticee that since they have
reversed/paid back the whole Cenvat credit pertaining to packing
material, they have fulfilled the said explanation. However, the
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interpretation made by the noticee does not appear to be correct. So far
as inputs which are used for manufacture of only exempted goods are
concerned, it is provided that no Cenvat credit is to be taken on such
inputs. The explanation merely states that the provisions of rule 6(3) are
not applicable to such inputs. However, when common inputs are used
for exempted and dutiable goods, the said explanation has no role to
play. When the noticee availed Cenvat credit commonly for the packing
material used for exempted products as well as dutiable products,
subsequent reversal of the credit ascertained by the noticee, would not
tantamount to fulfillment of rule 6(3) of the Cenvat Credit Rules, 2004.
Further, even if it is considered to be due compliance of rule 6 of the
Cenvat Credit Rules, 2004, the fact remains that the noticee used
Sulphur as common input for manufacture of dutiable goods as well as
exempted goods. However, the noticee has made only proportionate
reversal in case of credit pertaining to sulphur. Therefore, this plea of the
noticee is not tenable. Regarding the case law cited by the noticee, I find
that as discussed hereinabove, Hon. High Court in the case of CCE,
Thane-I Vs. Nicholas Piramal (India) Ltd. - 2009 (244) E.L.T. 321 (Bom.),
has clearly held that there is no other option left with the noticee other
than payment of amount as envisaged in rule 6(3) of the Cenvat Credit
Rules, 2004. Therefore, the citation, which is delivered by the Tribunal in
the year 2002 is over-ruled by the Hon. High Court judgment discussed
above.
20. The noticee has further contended that as per circular No.
591/28/2001-CX dated 16.10.2001, they have an option to reverse the
credit taken on inputs used in the manufacture of exempted goods. I
have gone through the said circular. I find that the said circular has been
further amended by circular No. 654/45/2002-CX dated 19.08.2002.
The relevant portion is reproduced below:
I am directed to refer to Board’s Circular No. 591/28/2001-CX.,
dated 16-10-2001 [2001 (133) E.L.T. T32] on the above subject.
Consequent to issuance of the circular, certain references were
received from field formations to say that the said circular has
gone beyond the scope of the rule and that an option has been
given to the assessee to reverse the actual credit contained in
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inputs or pay 8 percent of the price of exempted goods.
Accordingly, the matter has been examined.
Board observes that the provisions of Rule 6 of Cenvat 2. Credit
Rules, 2002 are unambiguous and clear. However, there appears
to be certain misconception in field formations regarding
applicability of the said rule and the said circular. Accordingly, it
is informed that the said circular was issued to clarify the legal
position at the relevant period only. In terms of Rule 6, the
assessee who has not maintained separate inventory and has
taken credit on common inputs to manufacture dutiable and
exempted products [except in the cases mentioned in the
provisions contained in sub-Rule (3)(a)] has no option but to
reverse 8% of the price of the exempted goods as per provisions of
sub-rule (3)(b) of the said rule. In fact, in terms of the
Explanation-II to the said rule, if the said amount is not paid, it
shall be recovered along with interest in the manner as provided
in Rule 12 of Cenvat Credit Rules, 2002. Provisions of Rule 13
would also get attracted.
In view of the above, it is clear that the plea of the noticee is
not tenable.
21. It is also contended by the noticee that they were eligible for
exemption under notification No. 39/2001-CE dated 31.07.2001 and
therefore they are not benefited from non compliance of rule 6(1) or
6(3) of the Cenvat Credit Rules, 2004. If they have taken short
Cenvat credit by restricting the inputs which are meant for use in
manufacture of exempted goods, their PLA amount will be increased
to that extent and the same would be refunded to them under the
said notification. Therefore suppression with intent to evade the
duty payment is absent in their case. In this regard, I find that once
separate accounts for inputs used in manufacture of exempted
goods and inputs used in manufacture of dutiable goods are not
maintained as per rule 6(2) of the Cenvat Credit Rules, 2004, it was
mandatory on the part of the noticee to pay an amount as per rule
6(3) of the Cenvat Credit Rules, 2004. The amount being paid under
rule 6(3) not being “duty of excise”, the same would not have been
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refunded to them under notification No. 39/2001-CE, ibid, as the
said notification exempts (by way of refund) the amount of “Central
Excise duty” and not the amount paid under rule 6 of the Cenvat
Credit Rules, 2004. Therefore, the argument of the noticee is
factually incorrect. In any case, this argument is not tenable as it is
hypothetical and based on ifs and buts.
22. The noticee has further contended that it is provided in the
retrospective amendment introduced by the Finance Act, 2010 that a
manufacturer may pay an amount equivalent to Cenvat credit
attributable to the inputs and input service used in or in relation to
the manufacturing of exempted goods before or after the clearance of
such goods and for this purpose, as provided in section 73(2) of the
Finance Act, 2010, they have applied with full details of amount
attributable to the Cenvat credit of inputs used in manufacture of
non-dutiable goods. They have requested to decide their application in
the current proceedings. In this regard, I find that Central Excise
Rules, 1944, Cenvat Credit Rules, 2001, Cenvat Credit Rules, 2002
and Cenvat Credit Rules, 2004 have been amended retrospectively
from 10th September 2004 to 31st March 2008 by the Finance Act,
2010 to provide for reversal of credit or payment of equivalent amount
attributable to the inputs used in or in relation to the excisable goods
on which no central excise duty is payable. These changes have taken
effect from 8th May 2010 on enactment of the Finance Bill, 2010. It is
expressly provided that these provisions apply only to such cases
where the disputes are pending as on the day the Finance Bill 2010 is
enacted.
23. Section 73 of the Finance Act, 2010 amended rule 6 of the
Cenvat Credit Rules, 2004 in the manner specified in column (3) of
the Eighth Schedule with retrospective effect, on or from and upto the
date specified in column (4) thereof, so as to provide for payment by
manufacturer of an amount equal to CENVAT credit attributable to
inputs or input services used in or in relation to manufacture of
exempted goods or goods chargeable to nil rate of duty before or after
clearance of such goods along with interest at the rate of 24% per
annum. The said amendment applies to cases in respect of which a
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dispute relating to adjustment of credit on inputs in or in relation to
exempted final products relating to the period beginning on 10th day
of September, 2004 to 31st day of March’2008 (both days inclusive)
was pending on the date on which the Finance Bill, 2010 received the
assent of the President.
The Eighth Schedule to the Finance Act, 2010 is as follows:
THE EIGHTH SCHEDULE
[See Section 73(1)]
S. No.
Provisions of CENVAT Credit Rules, 2004 to be amended
Amendment Period of effect of amendment
(1) (2) (3) (4) Rule 6 of the Cenvat
Credit Rules, 2004 as published vide notification no. G.S.r. 600(E), dated the 10th Septemeber, 2004 [23/2004-CE(NT), dated the 10th Septemebr’2004]
In the CENVAT Credit Rules, 2004, in rule 6, after sub-rule (6), the following sub-rule shall be inserted, namely: ‘(7) Where a dispute relating to adjustment of credit on inputs used in or in relation to exempted final products relating to the period beginning on 10th day of September, 2004 and ending with the 31st day of March’2008 (both days inclusive) is pending on the date on which the Finance Bill, 2010 receives the assent of the President, then notwithstanding anything contained in sub-rule (1) and (2), and clauses (a) and (b) of sub-rule (3), a manufacturer availing CENVAT credit in respect of any inputs or input services and manufacturing final products which are chargeable to duty and also other final products which are exempted goods, may pay an amount equivalent to CENVAT credit attributable to inputs or input services used in, or in relation to the manufacture of , exempted goods before or after the clearance of such goods: Provided that the manufacturer shall pay interest at the rate of twenty-four percent per annum from the due date till the date of payment of the said amount. Explanation – For the purpose of this sub-rule, “due date” means the 5th day of the month following the month in which goods have been cleared from the factory.’
10th day of September, 2004 to 31st day of March, 2008 (both days inclusive)
24. The said Finance Act, 2010 is enacted on 8th May 2010 and
accordingly has become law now. The facility mandated therein can
be availed by eligible entities by making due payment along with
interest @24% per annum. It is informed by the noticee that they have
repaid the entire amount of Cenvat credit availed on packing material
and proportionate credit pertaining to sulphur, during the said period.
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25. It is evident from the above that the said changes by way of
insertion of sub-rule (7) to rule 6 of the Cenvat Credit Rules, 2004
were effective only for the period upto 31.03.2008 (column (4) of the
Eighth Schedule to the Finance Act, 2010 as aforesaid refers). Hence,
the provisions of sub-rule (3) to rule 6 of the Cenvat Credit Rules,
2004 are applicable for the period from 01.04.2008 onwards. In
accordance with the said provision, the noticee in the given situation
was liable to pay an amount equal to 10% of the value of the
exempted goods so manufactured and cleared by the noticee during
the year 2008-09 and 2009-10 (upto November-2009). Also, they
would have had option to pay amount equivalent to the Cenvat credit
attributable to inputs and input services used in, or in relation to, the
manufacture of exempted goods as per rule 6(3)(ii) of the said rules
had they intimated the jurisdictional Superintendent of Central Excise
as envisaged in rule 6(3A)(a) of the said rules. The noticee failed in
complying with the said requirement of rule 6(3A)(a) of the said rules,
hence they are left with no other option than to comply with rule
6(3)(ii) of the said rules, i.e., to pay an amount equal to 5%/10% of
the value of the exempted goods.
26. The noticee, vide their application dated 29.06.2010 applied for
availment of option under section 73(2) of the Finance Act, 2010. The
period covered in the application is 2005-06 to 2008-09. However, as
discussed hereinabove, the retrospective amendment made is
applicable only upto 31.03.2008. Therefore, I find that the noticee is
eligible for availing the option upto 31.03.2008 only. The
quantification in respect of credit pertaining to sulphur used for
manufacture of the exempted product, maize starch, is calculated by
the noticee as Rs. 13,054/- for the period from April-05 to March-09.
However, this is carried out by calculating that some of the non
cenvatable sulphur was also used for manufacture of exempted
product, as they were procuring both cenvatable as well as non-
cenvatable sulphur. It is also seen that the noticee has reversed/paid
back Rs. 21,919/- on this count but the interest paid is calculated at
the rate of 13% instead of 24%, as provided in rule 6(7) of the Cenvat
Credit Rules, 2004. The application under rule 6(7) is made by the
noticee as per section 73(2) of the Finance Act, 2010, which reads as:
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(2) Where a person opts to pay the amount in accordance with
the provisions as amended by sub-section (1), he shall pay the
amount along with interest specified thereunder and make an
application to the Commissioner of Central Excise along with
documentary evidence and a certificate from a Chartered
Accountant or a Cost Accountant, certifying the amount of input
credit attributable to the inputs used in or in relation to the
manufacture of exempted goods, within a period of six months
from the date on which the Finance Bill, 2010 receives the assent
of the President.
A plain reading of the provision would show that the noticee
was required to pay the amount alongwith interest at the rate of 24%
per annum and after that he has to apply to the Commissioner for
availing the benefit of the retrospective amendment made by the
Finance Act, 2010. In the present case, however, the noticee has not
paid the amount of interest at appropriate rate. Further, the
calculation of proportionate credit is also not proper; as the
proportionate credit is calculated by considering that some of the non
cenvatable sulphur was used for manufacture of exempted maize
starch. Though the noticee has reversed full amount of credit availed
on packing material during the relevant period, due to the above
reasons and also due to the fact that the rate of interest paid on
reversal of credit pertaining to packing material is also calculated at
the rate of 13% per annum, the application of the noticee is lacking in
details as well as there is less payment of interest. However, as
provided in section 73(3) of the Finance Act, 2010, the short payment
can be pointed out and if the noticee pays up such short payment, the
benefit cannot be denied. Accordingly, the jurisdictional Deputy
Commissioner was requested to inform the noticee accordingly. In
reply, it was informed that the noticee has calculated the credit on
common inputs upto 31.03.2008 and deferential interest thereon,
which was duly certified by jurisdictional range superintendent. The
proportionate credit in case of sulphur came to Rs. 6136/- and in
case of packing material it came to Rs. 3,73,502/-. The noticee has
also paid differential interest of Rs. 77,328/- vide challan dated
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31.10.2012. Therefore, the application of the noticee is now allowed,
for proportionate reversal of credit upto 31.03.2008.
27. During personal hearing, it was also contended by the noticee
that they had exported a substantial quantity of finished goods which
are excluded from rule 6 of the Cenvat Credit Rules, 2004. I find that
the annexure to SCN mentions the quantity and value of exports
made by the noticee. Since as per rule 6(6) of the Cenvat Credit Rules,
2004, the provisions of sub-rules (1), (2), (3) and (4) shall not be
applicable in case the excisable goods removed without payment of
duty are cleared for export under bond in terms of provisions of the
Central Excise Rules, 2002, the contention of the noticee is found to
be correct and demand is required to be reduced to that extent. Since
the demand pertaining to the period prior to 01.04.2008 has been
considered under section 73 of the Finance Act, 2010, in the foregoing
paragraph, the reduction in demand is to be considered only for the
period from 01.04.2008 to November-2009. I find that the
quantification of demand for the said period at the rate of 5/10%
comes to Rs. 77,62,338/-, after excluding the value of exempted
goods cleared for export, which is required to be confirmed under rule
14 of the Cenvat Credit Rules, 2004 read with rule 6(3) of the Cenvat
Credit Rules, 2004. Since the amount is not paid till date, interest
under rule 14 of the Cenvat Credit Rules, 2004 is payable by the
noticee.
28. It is also contended by the noticee that the demand is time barred
as they have not suppressed anything from the department. That officers
visited their factory at the time of registration as well as at the time of
verification of their application for benefit of notification No. 39/2001
and that they have shown clearance of exempted products in their ER-1
return and details of inputs used, in ER-6 returns. It is also contended
that 2-3 audit parties have visited their premises and the activity was
known to the department. It is also contended that the ratio of Cenvat
credit availed is very low compared to their monthly duty payment and
that too has been reversed on being pointed out. Therefore, there was no
malafide intention on their part and therefore extended period cannot be
invoked in their case. In this regard, I find that so far as ER-1 and ER-6
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returns are concerned, there is no indication that common inputs were
used for manufacture of dutiable as well as exempted products. Merely
providing list of inputs and list of final products or for that matter,
showing clearance of exempted products in ER-1 return will not mean
that department knew that some common inputs were being used for
manufacture of both types of final products. Regarding visit of officers
and audit parties, I find that it is a lame excuse provided by the noticee.
It is held by Hon. Tribunal in the case of Chemfab Alkalies Ltd. Vs. CCE,
Pondicherry - 2010 (251) E.L.T. 264 (Tri. - Chennai) that:
Demand - Limitation - Cenvat/Modvat - Separate accounts not
maintained of common inputs for exempted and dutiable
products, and particulars of exempted product not submitted to
department every year - Extended period invocable - Rule
6(3)(b) of Cenvat Credit Rules, 2004 - Section 11A of Central
Excise Act, 1944. [para 7]
Demand - Limitation - Suppression - Audit parties visit all
excisable units from time to time - Their visit cannot mean that
extended period will not apply in respect of any unit, as that
would render provision regarding extended period totally
redundant - Section 11A of Central Excise Act, 1944. [para 6]
Therefore, I find that extended period has been correctly
invoked in the SCN. Since this is a clear case of suppression of facts
with intent to evade payment of duty, the penalty under rule 15 of the
Cenvat Credit Rules, 2004 is imposable on the noticee.
29. In view of the above, I pass the following order:
ORDER
(i) For the period before 01.04.2008, I allow the benefit of
section 73(1) of the Finance Act, 2010 to the noticee. The
reversal of credit made by the noticee amounting to Rs.
3,79,638/- (Rs. 6136/- on sulphur and Rs. 3,73,502/- on
packing material) is appropriated and the remaining amount
of reversal, i.e. excess reversal made by the noticee to the
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tune of Rs. 18,974/- (Rs. 398612/- - Rs. 3,79,638/-) is
ordered to be adjusted against the demand confirmed for the
remaining period.
(ii) I confirm the demand of amount Rs. 77,62,338/- (Seventy-
seven lakh, sixty-two thousand, three hundred and thirty-
eight only) on the noticee under rule 6(3) of the Cenvat
Credit Rules, 2004 read with rule 14 of the Cenvat Credit
Rules, 2004.
(iii) The amount of demand confirmed should be paid alongwith
interest, as due and payable under rule 14 of the Cenvat
Credit Rules, 2004.
(iv) I impose penalty of Rs. 77,62,338/- on the noticee, under
rule 15 of the Cenvat Credit Rules, 2004. However, if the
demand confirmed alongwith interest is paid by the noticee
within 30 days of receipt of this order, the penalty shall
stand reduced to 25%, provided the reduced penalty is also
paid within 30 days of receipt of this order.
(V. Padmanabhan)
Commissioner F.No.V.35/15-11/Adj/2010 Rajkot, dated: 08.11.2012. BY REGD. POST A.D. To, M/s. Santosh Starch Products Santoshdham, Sukhpur Road, Post Morgar, Taluka-Bhachau(Kutch) Copy to:
1. The Chief Commissioner, Central Excise, Ahmedabad. 2. The Deputy Commissioner, Central Excise, Division,
Gandhidham. 3. The Deputy Commissioner (Audit), Central Excise, Hq. Rajkot. 4. The Assistant Commissioner (Tech), Central Excise, HQ. Rajkot. 5. The Superintendent, Central Excise, AR-Kharirohar. 6. Guard File.