CENVAT Rule 6 Inapplicable to Captively Used Intermediate Processed Milk: CESTAT Chennai

Lotte India Corporation Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)

Summary: CESTAT Chennai allowed the appeals of Lotte India Corporation Ltd. and set aside CENVAT credit demands arising from the Department’s treatment of “Processed Milk” as an exempted final product under Rule 6 of the CENVAT Credit Rules, 2004. The appellant manufactured sugar confectionery falling under Chapters 17 and 18 of the CETA, 1985 and also produced processed milk, which was either captively consumed in manufacture of sugar confectionery or supplied to sub-contractors for further use.

Processed milk was exempt from duty under Notification No.03/2006-CE dated 01.03.2006. The Department alleged that common input-service credit had been availed for dutiable and exempted goods without maintaining separate accounts and proposed recovery of Rs.4,17,126/- for March 2013. For April 2013 to March 2014, despite reversal of CENVAT credit under Rule 6(3A), further demands of Rs.6,60,643/- were raised on the allegation that reversal was deficient.

The appellant contended that processed milk was not cleared or sold independently but was only an intermediate product used in manufacture of dutiable sugar-boiled confectionery. Alternatively, it argued that any deficiency in Rule 6(3A) reversal could justify recovery only of the differential credit and not 6% of the value of exempted goods. CESTAT held that Rules 3 and 6 must be read harmoniously and that an intermediate product captively consumed in, or sent to a job worker for, manufacture of the dutiable final product cannot be equated with an exempted final product independently cleared from the factory.