CESTAT Rejects Demand as CENVAT Credit Need Not Lapse When Dutiable Goods Continue

Principal Commissioner of CGST & CX Vs Sharp Menthol India Ltd (CESTAT Delhi)

The department filed three appeals challenging the order dated 25.10.2021 passed by the Principal Commissioner, which had dropped proceedings initiated against the assessee through three show cause notices dated 03.04.2009, 06.04.2010, and 01.02.2011. The disputes related to the applicability of Rule 11(3) and Rule 6 of the CENVAT Credit Rules, 2004, concerning CENVAT credit availed by the assessee.

The assessee manufactured Menthol Crystal, Menthol BP/USP, Menthol (liquid), Rectified Spearmint Oil, Menthone, and other flavouring products using duty-paid inputs procured from Jammu-based manufacturers. Certain final products became exempt from excise duty pursuant to Notifications No. 4/2008 and 10/2010, while some products remained dutiable. The assessee substantially exported its products under bond or rebate claims and maintained that it had separate records for inputs used in dutiable and exempted products.

The three show cause notices proposed recovery of: (i) Rs. 6.52 crore representing CENVAT credit balance as on 01.03.2008 for alleged violation of Rule 11(3); (ii) Rs. 7.97 crore being 10%/5% of the value of exempted goods cleared domestically under Rule 6(3); and (iii) Rs. 8.38 crore being 10%/5% of the value of exempted goods exported under bond. The aggregate amount involved was Rs. 22.88 crore.