2019 (2) TMI 12 – CESTAT CHENNAI – TMI – CENVAT Credit – Incorrect reversal of cenvat credit attributable to exempted goods by considering the weight of the final product and not considering the quantum of inputs used in the manufacturing activity – Held that:- When there is an embargo to avail credit on inputs used for manufacture of exempted products, the appellant cannot contend that the credit would be eligible since the waste and scrap is cleared on payment of duty – the demand of ₹ 1,29,52,945/- on this issue is legal and proper and does not require interference.
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CENVAT Credit – Incorrect reversal of credit for LPG / Furnace oil used in the manufacture of exempted goods, by incorrect adoption for value of exempted goods – Non reversal of input services credit for exempted goods manufactured – Sep 2005 to March 2008 – Held that:- Even prior to 1.4.2008, when the CENVAT Credit Rules bars availing of credit on inputs used for exempted products and also lays down proced
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for customers other than VSSC – for the purpose of reworking the credit that has to be reversed under this issue, the matter remanded along with the above two issues to the adjudicating authority.
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Penalty – Held that:- All these issues are in the nature of interpretation of law or have resulted from mistakes and inadvertent errors on calculating the amounts to be reversed – the penalties imposed on all the issues cannot sustain and require to be set aside.
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Appeal allowed in part – part matter on remand. – Appeal No. E/519/2011 – Final Order No. 40200/2019 – Dated:- 31-1-2019 – Ms. Sulekha Beevi C.S., Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical) Shri M. Karthikeyan, Advocate for the Appellant Shri A. Cletus, Addl. Commissioner (AR) for the Respondent ORDER Per Bench The appellant is engaged in manufacture of steel rings, steel forgings and aluminum forgings falling under CETH 73 and 76. Pursuant to investigation, proceedings were initiated against the
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red – Sep 2005 to March 2008 Rs.5,38,281 6 Non reversal of input services credit for exempted goods manufactured – April 2008 to March 2010 Rs.4,61,569 7 Availment of credit on input services exclusively used in the manufacture of exempted goods Rs.2,71,005 8 Availment of credit on capital goods used exclusively in the manufacture of exempted goods. Rs.18,53,440 2. In all, the impugned order confirmed total demand of ₹ 2,32,51,011/- along with interest thereon and also imposed equal penalty under Rule 15(2) read with Section 11AC of the Central Excise Act, 1944. Hence this appeal. 3. When the matter came up for hearing ld. counsel Shri M. Karthikeyan, made oral and written submissions which can be broadly summarized as under:- 3.1 The appellant is not contesting the demand relating to Sl. No. 1 (Rs.49,15,448/-), Sl. No. 2 (Rs.4,73,544/-), Sl. No. 7 (Rs.2,71,005/-) and Sl. No.8 (Rs.18,53,440/-). However, he contends that availment of CENVAT credit in these cases had happened only
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manufacture and the resultant final product manufactured weigh only 0.6 Mt, the appellant has reversed credit relating to the input contained in the final product alone, as they are clearing the waste material arising out of such process on payment of duty. In the impugned proceedings, CENVAT credit has been denied on the entire 2 Mt of Steel ingot in full. In this regard, the appellant places reliance on the decision of the Hon ble High Court of Allahabad in the case of M/s. Albert David Ltd. reported in 2013 TIOL 621 HC ALL CX wherein the majority decision of the Hon ble Tribunal, holding that CENVAT credit is not admissible in respect of input contained in the waste and scrap generated during the manufacture of exempted final product, was reversed and it was held that CENVAT credit is admissible on the inputs contained in the waste generated during the manufacture of exempted final product. Revenue s SLP against the said decision was dismissed by the Hon ble Supreme Court as report
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ted goods manufactured on job work basis by taking into account the job charges received as the value of exempted products. However, in the impugned proceedings, it has been alleged that the value of FOC materials supplied for job work have not been taken into account. Similarly, in the impugned proceedings it is alleged that the entire amortized value of the plant and machinery funded by VSSC also has not been taken into account while arriving at the value of the exempted goods for the purpose of the reversal made in cases where goods were manufactured on their own. The explanation in Rule 6(3A) is effective prospectively only from 1.4.2008 onwards. Notwithstanding the same, the appellant submits that in respect of common inputs used in the exempted goods amount equivalent to CENVAT credit attributable to inputs used have to be reversed and the formula prescribed with effect from 1.4.2008 will apply only for input services and not for inputs used. Hence the demand proposed in this reg
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regard, except that the inclusion of the amortized value of plant and machinery funded by VSSC have to be reworked as mentioned above. 3.9 Invocation of extended period is not sustainable in this case, as the demand has arisen due to either clerical mistakes/inadvertent errors or interpretation relating to Rule 6 and manner in which the reversal amount is required to be calculated. Further, the entire credit taken has not been utilized and the appellant has reversed the credits during the investigation itself as and when pointed out much before the issue of the impugned SCN itself. As such, demand of interest and imposition of penalties are not sustainable. 4. On the other hand, ld. AR Shri A. Cletus supported the impugned order. In respect of the ld. counsel s reliance in the case of Albert David Ltd. (supra), he submits that the ratio thereof cannot be made applicable to the present appeal for the reason that in Albert David Ltd., the issue related to credit on inputs contained in s
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fair that the same should be applied even for the period prior to 1.4.2008 also. 5. Heard both sides. 6.1 The appellants are availing following exemption for the excisable products manufactured and cleared from time to time:- Notification 6/2006 dated 20.3.2006 Parts of wind mills Notification 10/97 dated 1.3.1997 Steel forgings / steel rings Notification No.64/95 dated 16.3.95 Steel forgings / steel rings and aluminum forgings / rings 6.2 They entered into agreement with VSSC of ISRO by which VSSC had agreed to fund for the facility (providing machineries) to the tune of ₹ 56 crores required for the manufacture of final product. The appellant is engaged in manufacture of exempted as well as dutiable products. The first dispute is concerned with the common inputs used for manufacture of exempted goods as well as use of capital goods (machineries) given by VSSC. 6.3 The appellants are not contesting the issues in Sl. No. 1, 2, 7 and 8 and are confining the contest on these issues
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artment to quantify the amount of proportionate quantity that has to be reversed for manufacture 0.6 MTs of exempted final product, the steel ingots to the quantity of 2.0 MTs used has to be taken into account. In this issue, the appellant has mainly taken support of the contention that they have cleared the waste / scrap arising out of the manufacture by payment of duty, that is, they have paid duty of ₹ 25,48,822/- on the scrap arising out of manufacture of exempted products. That therefore the remaining inputs is contained in the waste / scrap and they are eligible for the credit of inputs contained in the waste and scrap and are not required to reverse the balance credit. From records it is seen that the appellants have adjusted the duty paid on scrap being ₹ 25,45,822/- and calculated the balance to be ₹ 95,07,123/- and have paid this amount. They have contended that since the inputs are contained in the waste and scrap and when such scrap is cleared on payment o
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us, it is the CENVAT Credit Rules, 2004 which applies. Under Rule 6 of these Rules, there is nothing to show that waste and scrap are also final products. In fact, Rule 6 specifically states that credit cannot be availed on inputs used for manufacture of exempted final products. The said Rule also contain provisions to work out the quantum of eligible credit when common inputs are used for exempted products as well as dutiable products. All this would go to show that credit is not eligible on inputs used for manufacture of exempted final products. The said Rule does not make any separate dispensation when the waste and scrap arising during the manufacture of such exempted final products are cleared on payment of duty. When there is an embargo to avail credit on inputs used for manufacture of exempted products, in our view, the appellant cannot contend that the credit would be eligible since the waste and scrap is cleared on payment of duty. For this reason, we find that the decision r
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have arrived at the value of clearance of exempted goods by taking into consideration the job charges only and not including the material cost. The value of exempted goods has to be arrived by including both material cost as well as job charges. Further, for the finished products manufactured on their own account for VSSC and cleared under exemption, the appellants have not included the amortized cost of plant and machinery funded by VSSC. The demand has been raised by the department by including the cost of raw material supplied free by the customers of VSSC and MIDHANI and also the amortized cost of the plant and machinery which was funded by VSSC. It is seen from the records that the appellant furnished Chartered Accountant s certificate as to the funded facility of machineries. Based on the above certificate and other documents, the amortized cost and the material cost has been arrived by the department and the demand for the period September 2005 to March 2008 has been arrived to
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hich royalty is paid to VSSC by the appellant. That therefore the amortization of the entire value of such plant and machinery and adding the same to arrive at the value of exempted clearances is not correct. After taking into consideration the submissions made by the appellant, we find that the appellant while reversing the credit has not applied the correct formula. Though the formula has come into effect only from 1.4.2008, the value of the clearances has to be arrived by including the cost of free supplies as well as amortized value of funded machineries. The law after 1.4.2008 is very much clear as to how to arrive at the value of exempted goods. Even prior to 1.4.2008, when the CENVAT Credit Rules bars availing of credit on inputs used for exempted products and also lays down procedure for reversal of proportionate credit, the appellant had to arrive at the value of clearances by taking into consideration the value of free supplies as well as amortized cost. We also have taken in
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reversed under this issue, we remand the matter along with the above two issues to the adjudicating authority. 6.7 The appellant has submitted that Sl. No. 1, 2, 7 and 8 are not contested and they are confining their plea with regard to the waiver of penalties imposed. It is brought out from the submissions as well as from the records that the appellant had enough credit balance during the relevant period. They had reversed major part of the credit during the investigation itself and as and when pointed out by the department and this was done much before issuance of the show cause notice. We further, take note that all these issues are in the nature of interpretation of law or have resulted from mistakes and inadvertent errors on calculating the amounts to be reversed. Taking all these aspects into consideration, we are of the view that the penalties imposed on all the issues cannot sustain and require to be set aside, which we hereby do. 7. From the discussions made above, we hold tha
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