Demand unsustained as CENVAT of common input service used in exempted goods reversed

P I Industries Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)

CESTAT Ahmedabad held that demand of excise duty equal to 10%/5% unsustainable as Cenvat credit in respect of common input service used in the manufacture of exempted goods reversed.

Facts- The appellant are engaged in manufacture of excisable goods falling under chapter No. 28,29,31& 38 of the Central Excise Tariff Act, 1985. They are also availing Cenvat Credit under Cenvat Credit Rules 2004 on central excise duty paid on Inputs, Capital Goods and Input Services. Appellant is manufacturing Siapton 10L which was exempted. The said goods were cleared without payment duty but neither separate account were maintained for duty paid inputs and input services used in the manufacture of dutiable and exempted goods nor 10% amount of value of clearance of such goods was paid.

Accordingly, show cause notices dated 29-02-20209 and dated 13.05.2010 were issued to the appellant demanding central excise duty under Rule 6(3)(b) of Cenvat Credit Rules, 2004. In adjudication, the Ld. Commissioner dropped the proceeding initiated against the Appellant vide SCN dated 13.05.2010 and in respect of show cause notice dated 22.09.2008 confirmed the demand of Rs. 1,26,19,534/- in terms of Rule 6(b) of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 and imposed penalty of Rs.1,26,19,534. Hence the present appeal.

Conclusion- The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. Moreover this issue has been consistently considered in various judgments wherein it was held that if the assessee reverse the Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10%/5% will not sustain. Therefore, we do not find any merits in the impugned order confirming demand for the period April 2008 to June 2009.

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