Cenvat credit on common inputs eligible only in terms of rule 6 when excisable & exempted products are manufactured

Commissioner of Central Excise Vs. Nicholas Piramal (India) Ltd. (Mumbai High Court)- The Honourable Tribunal was right in allowing the assessee for reversal of credit taken, instead of insisting upon the assessee to pay an amount equal to 8% or 10% of total price of the exempted goods as per the Rules 6(3)(b) of Cenvat Credit Rules 2002 . Cenvat credit on common inputs eligible only in terms of rule 6 when excisable & exempted products are manufactured. Credit can be availed only in terms of rule 6(3) and reversal of pro rata credit not permissible. Judgement of Chandrapur Magnet distinguished by Honourable Bombay High Court.

Facts

The respondents are engaged in the manufacture of Vitamin A falling under Chapter Heading 29.36 and animal food supplement falling under Chapter Heading 23.02 of the Schedule to the Central Excise Tariff Act, 1985. Vitamin A is liable to Central Excise Duty. Animal food supplement is not liable for payment of Central Excise Duty since Heading 23.02 attracts nil rate of duty. The Cenvat credit on common inputs utilised in manufacture of aforesaid final products was availed by the respondent during the period of dispute. At the time of clearance of exempted finished goods (i.e. Animal food supplement), the proportionate credit relating to inputs utilised in manufacture of the said exempted final products was reversed. However, Revenue issued a show cause notice demanding 8% of the value of the exempted final products in terms of Rule 57CC(1) of the Central Excise Rules, 1944/Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The said notice was adjudicated and the same was confirmed by the Commissioner. In an appeal before the Tribunal, the matter was allowed on majority by the larger bench. Revenue is in appeal before the Hon’ble High Court against this order of the Tribunal.

Held

The Bombay High Court agreed with the position adopted by the revenue and held that in absence of any provision allowing proportionate reversal of credit availed in respect of common inputs in Rule 57CC of the Central Excise Rules, 1944 or Rule 6 of Cenvat Credit Rules 2004, It would be imperative on the respondent to pay an amount equal to 8% of the value of exempted final products in terms of Rule 57CC(1) of the Central Excise Rules, 1944/Rule 6(3)(b) of Cenvat Credit Rules, 2004, in the event the respondent did not opt to maintain separate accounts in respect of inputs utilised in manufacture of exempted final products. The Bombay High Court strictly interpreted Rule 57CC of the Central Excise Rules, 1944/Rule 6 of Cenvat Credit Rules, 2004 to hold that a mere reversal of proportionate credit would not comply with the requirements of aforesaid Rule.

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