Case Law Details
Suryauday Spinning Mills Ltd Vs Commissioner of Central Tax Secunderabad – GST (CESTAT Hyderabad)
Introduction: The case of Suryauday Spinning Mills Ltd vs. Commissioner of Central Tax, Secunderabad, as heard by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Hyderabad, revolves around whether the appellant, a manufacturer of polyester spun yarn (PSY), is required to reverse CENVAT credit on their exempted turnover. The question arises under the framework of Rule 6(3) of the Central Excise Rules.
Detailed Analysis: Suryauday Spinning Mills Ltd is engaged in the business of manufacturing polyester spun yarn, which falls under Chapter 55 of the Central Excise Tariff Act, 1985. They use duty-paid polyester staple fiber (PSF) for their manufacturing process. The company benefits from Notification No.30/2004-CE, which exempts their manufactured goods from excise duty, provided they do not avail CENVAT credit.
The company manufactures and clears PSY without paying excise duty, thanks to this exemption. However, they also have the option of paying excise duty after availing CENVAT credit on the inputs.
The dispute arises when the appellant avails CENVAT credit proportionately on the inputs used in the manufacturing of dutiable goods and reverses the credit concerning exempted goods based on the input-output ratio, accounting for wastage. The company’s records reflect their eligibility for the exemption under Notification No.30/2004-CE.
A series of events unfolded in this case, beginning with an audit in June 2015 regarding the appellant’s credit utilization. Audit objections were raised, and the appellant responded. During the audit, the appellant made payments on two separate occasions, and a reconciliation of records occurred. Subsequently, the department issued a show-cause notice proposing a substantial demand.
The department’s case was based on the allegation that the appellant irregularly availed CENVAT credit on inputs used for manufacturing exempt goods due to incorrect record keeping. They argued that the appellant should have paid a specific percentage (5% or 6%) on the value of exempted goods cleared. The revenue asserted that the appellant’s separate record maintenance indicated an intention to avail the option of maintaining separate accounts, which was not permissible.
Furthermore, the department argued that the extended period of limitation was applicable, as the appellant had committed a different error than in the previous period.
Conclusion: The core issue in this case is the interpretation of Rule 6(3) of the Central Excise Rules, particularly regarding the reversal of CENVAT credit on exempted turnover. The tribunal’s decision emphasizes the importance of proper record maintenance and the adherence to the regulations, which provide taxpayers with specific options for reversing CENVAT credit when exempted goods are involved.
In this particular case, the CESTAT Hyderabad ruled in favor of the appellant, stating that they were entitled to reverse the credit as per option (i) of sub-rule (3) of Rule 6, which allows the payment of an amount equal to the specified percentage (5% or 6%) of the value of exempted goods. This interpretation underscores the significance of adhering to the provisions of Rule 6(3) and its various options.
The judgment also highlights the role of the tribunal in interpreting and applying the central excise rules, ensuring that taxpayers are held accountable within the framework of the law. In summary, the ruling reaffirms the importance of proper record-keeping and compliance with excise regulations, particularly when dealing with CENVAT credit and exempted goods.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
The issue involved in this Appeal is whether the Appellant is required to reverse Cenvat credit on their exempt turnover under clause (i) or (ii) of sub-Rule (3) of Rule 6.
2. The Appellant is engaged in the business of manufacturing polyester spun yarn (‘PSY’) falling under Chapter 55 of the Central Excise Tariff Act, 1985, using the duty paid Polyester staple fiber (‘PSF’) procured by them.
3. The Appellant is entitled to benefit under Notification No.30/2004-CE dated 09.07.2004 (‘N.N. 30/2004’), wherein, the goods manufactured by the Appellant are wholly exempt from excise duty leviable thereon with the condition of non-availment of Cenvat Credit. Therefore, the Appellant is manufacturing and clearing PSY without payment of duty under Notification No.30/2004-CE dated 09.07.2004 and on payment of duty after availing cenvat credit on the inputs.
4. The Appellant only avails Cenvat credit proportionately on inputs used in manufacture of dutiable goods and proportionately reverses the credit pertaining to exempt goods, on the basis of input-output ratio, after considering the wastage. The fact of availment of exemption under Notification No.30/2004-CE dated 09.07.2004 is evident from the ER-1 Returns filed for the relevant period.
5. The table below would summarize the event along with the dates:
|
DATE |
DESCRIPTION |
| June 2015 | Audit in the Appellant’s premises regarding the availment of credit based on consumption of raw material used in dutiable goods and exempt goods. |
| 08.07.2015 | Audit objections in respect of the audit conducted |
| 05.08.2015 | Appellant’s Reply to Audit Objections |
| 05.08.2015 | The Appellant paid Rs.20,00,000/- during Audit |
| 21.10.2015 | The Appellant paid Rs.1,08,95,173/- during Audit |
| 21.10.2015 | Appellant submitted letter to the Department intimating them the amount of Cenvat credit liable to be reversed after reconciliation of records after Audit. |
| 11.01.2016 | Department letter addressed to Appellant requiring them to reverse an amount of Rs.1,62,60,808/-. |
| 01.03.2016 | Appellant submitted letter to the Department stating that the amount of Rs. 1,28,95,173/- is ‘paid under protest’ as the Appellant is not required to reverse credit on exempt goods and can opt for payment of 5%/6% on value of exempt goods, along with detailed statement. |
| 16.03.2016 | Final Audit Report for the period October 2011 to March 2015 |
| 16.09.2016 | SCN issued to the Appellant proposing demand of Rs.1,62,60,808/- with the allegation that the Appellant has wrongly availed Cenvat credit on raw material used for manufacture of exempt goods along with interest and penalty. Further, an amount of Rs.4,36,809/-alleging that transportation charges are liable to be included in the assessable value for payment of excise duty since place of delivery is buyer’s premises |
| Reply submitted by Appellant in respect of the above SCN | |
| 30.12.2016 | OIO No. 52/2016-17-CE-Hyd-III-Adjn(ADC) passed by the Adjudicating Authority confirming the entire demand proposed in the SCN |
| 27.12.2017 | OIA No. HYD-EXCUS-SC-AP2-0157-17-18 passed by the commissioner Appeals, upholding the OIO and partly allowing the appeal by setting aside demand of Rs.4,36,809/-. |
6. The Case of the department is as follows:
(a) The Appellant has irregularly availed cenvat credit on inputs used in manufacture of exempt goods on account of wrong maintenance of records.
(b) The Appellant should have paid 6% on the value of exempted goods cleared and reflected the same in their returns. However, they maintained separate records and had not availed credit on the inputs used for manufacture of exempt goods, which resulted in excess credit being availed.
(c) The Appellant accepted that the records were maintained incorrectly, and the ratios of inputs were skewed and agreed for reversal of credit. Accordingly, there is no infirmity in the allegation of suppression.
(d) Maintenance of separate records by the appellant indicates their intention to avail the option of maintaining separate accounts and not reversal of 6% under Rule 6 of CCR, which is not acceptable in terms of the restriction of Rule in Explanation (I) to Rule 6(3) of CCR.
(e) Extended period of limitation is invocable for subsequent period, since the appellant committed a different kind of error than the previous period.
7. Heard the parties.
8. Upon hearing the parties, we find that it is the allegation of the Revenue in the SCN, that Appellants have not maintained proper records of input credit and its utilization, so far, they are clearing both taxable and exempted finished goods. It is the case of the Revenue, that in such case, as there is some discrepancy in the utilization as per input-output ratio, accordingly, Appellant is required to pay the deficit amount of Cenvat credit, under Rule 6(2) read with Rule 6(3)(ii) of CCR.
9. We find that Rule 6(3) categorically starts with the words – Notwithstanding anything contained in sub-rule (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, which, inter alia, include option to pay an amount equal to the specified percentage of value of exempted goods or exempted services, along with other option of reversing the proportionate amount under sub-rule (2) or maintain separate accounts for the receipt consumption in the inventory of inputs, as provided in clause (a) of sub-rule (2) and take credit only on inputs under sub-clause (ii) and (iv) of the said clause (a), and pay an amount as determined under sub-rule (3A) in respect of the input services.
10. Thus, we find that once it is the case that proper records have not been maintained with regard to receipt of inputs and its utilization, sub-rule (3) gives option to the Assessee, and thus, Revenue cannot enforce any of the option(s) under sub-rule (3). Thus, we hold that Appellant is entitled to reverse the amount of credit as per option in clause (i) of sub-rule (3) of Rule 6 i.e., pay an amount equal to the specified percentage (5% or 6%) of the value of exempted goods, in the facts of the present case.
11. In view of our findings, we allow the Appeal and set aside the Impugned Order. Appellant shall be entitled to consequential benefits, in accordance with law. As the Appellants have admittedly paid the amount of Rs.1,28,95,173/-during audit/ investigation under protest, they shall be entitled to refund of the same with interest as per Rules.
(Dictated and pronounced in the Open Court)
