CESTAT, AHMEDABAD BENCH
Air Control & Chemical Engineering Co. Ltd.
Commissioner of Central Excise, Ahmedabad
FINAL ORDER NO. A/776/2011-WZB/AHD.
APPEAL NO. E/745 OF 2009
MAY 5, 2011
1. As per facts on record, the appellant is engaged in the manufacture of Refrigerator, Compressor, spares, valves, flywheel/crank shaft, C.I. casting etc. falling under Chapter 84 and 73 of the Central Excise Tariff Act, 1985. For the month of March 2007, the appellant was required to discharge its duty liability by 31-3-2007, however, they defaulted to make the payment of Rs. 22,32,118/- for the said month in due time and the same was paid only in the month of December 2007. In terms of the provisions of Rule 8(3A), the appellant’s facility to make the payment at the end of the month or on fortnightly basis out of cenvat credit was withdrawn and they were required to pay the duty on consignment basis out of PLA. There is no dispute that the appellants paid the duty in respect of their final product at the time of clearances of the same by not utilizing the cenvat credit but in cash.
2. Apart from the dutiable goods the appellants were also manufacturing the other products which were being cleared by them under exemption Notification No. 64/95-C.E., dated 16-3-1995, 10/97-C.E., dated 1-3-1997 and 6/2006-C.E., dated 1-3-2006. Inasmuch as they were availing the cenvat credit of duty on the common inputs utilized in the manufacture of dutiable as also exempted final products, they were required to pay 10% of the value of exempted final products, in terms of the provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2002. The appellant paid the said amount of 10% by debiting the same in their cenvat credit account. In addition, some of the inputs were also cleared by them as such and they paid the Cenvat credit availed on the same by debiting the cenvat credit account.
3.1 The Revenue’s objection is for utilization of the Cenvat credit for payment of amount of 10% of the value of the exempted final products in terms of provisions of Rule 6(3)(b) and for clearance of the inputs as such. As per the Revenue, inasmuch as the facility to pay duty of excise by utilizing the cenvat credit was not available to them having defaulted in payment of duty during the month of March 2007 and in terms of the provisions of Rule 8(3A), they were not entitled to use the Cenvat credit even for their clearances in terms of Rule 6(3)(b). As such, proceedings were initiated against them which culminated into impugned order passed by the lower authorities confirming demand of duty of Rs. 7,00,844/- along with interest and imposition of penalty of Rs. 6,000/- under Rule 25 of the Central Excise Rules, 2002, read with Rule 15 of Cenvat Credit Rules, 2004. Hence the present appeal.
3.2 The lower authorities have confirmed the demand against the appellant by holding that in terms of Explanation to Rule 8 of Cenvat Credit Rules, 2002, expression “Duty” or “Duty of Excise” shall also include the amount payable in terms of Cenvat Credit Rules, 2004. Thus the amount payable under Cenvat Credit Rules 2004 is treated on par with duty and bought within the ambit of the provisions governing manner of payment of duty envisage under Rule 8 of the Central Excise Rules, 2002. As such it stands held by the lower authorities that consequently, in case of default in payment of duty, restriction of utilization of Cenvat credit for payment of duty on final products imposed under sub-Rule 3(A) of Rule 8 will also be applicable to payment of duty under Rule 6(3)(b) of Cenvat Credit Rules, 2004.
3.3 On the other hand, it is the appellant’s contention that cenvat credit availed by the appellant can be utilized in terms of the provisions of Rule 3(4) for payment of duty of excise on final products or an amount equal to cenvat credit taken on inputs or capital goods, if such inputs or capital goods are removed as such or an amount under sub Rule 2 of Rule 16 of Central Excise Rules, 2002 or for service tax on any output service. Inasmuch, as the restrictions under Rule 3(a) of Rule 8 is only for utilization of Cenvat credit for the aforementioned categories including payment of any duty of excise on any final product has been restricted. The same did not impose any restriction on the payment made on amount of exempted goods cleared under Rule 6(3)(b) of Cenvat Credit Rules, 2004. It is their contention that payment of 10% of value of exempted goods payable in terms of the above Rule 6(3)(b) of Cenvat Credit Rules cannot be equated with payment of “any duty of excise on any final product” as envisaged under Rule 3(4)(a) of Cenvat Credit Rules, 2004. Further, the provisions of Rule 6(3), Explanation 1 and 2 makes it clear that the amount mentioned in conditions (a) and (b) of the said Rule are required to be paid by debiting the cenvat credit and in case of failure to pay the same, has to be recovered as cenvat credit wrongly availed. As such, it becomes clear that 10% of the price of the exempted goods is required to be paid by reversing cenvat credit. In the alternative, they submitted that they have already paid the duty out of the Cenvat credit and in case the same is required to be paid out of PLA, they are entitled to reverse the credit in their Cenvat account. The appellant is regularly making payment from PLA and in that case, the payments made from PLA shall stand reduced to the extent in question and the entire exercise would be Revenue neutral. As such, they contended that no demand is sustainable.
4. After carefully considering the submissions made by both the sides, I find that the dispute lies in very narrow compass. Admittedly, the appellants have followed the provisions of Rule 8 for discharging their duty liability on consignment basis and out of PLA, during the period of dispute on account of default for payment of duty in the month of March 2007. The appellants were required to pay 10% of value of the final exempted goods in terms of the provisions of Rule 6(3)(b) of Cenvat Credit Rules. The said Rule very clearly states that the manufacturer shall pay an amount equal to 10% of the total price of the exempted final products, charged by the manufacturer for the sale of such goods at the time of their clearance from their factory. Explanation-1 attached to the said Rule is to the effect that such amount shall be paid by the manufacturer by debiting the cenvat credit or otherwise. As this amount payable at the time of clearances of the exempted final products is primarily intended to counter-effect the credit availed on the inputs used in the manufacture of such final exempted products. As such, the intent being to neutralize the credit so availed, the explanation provides for payment from the Cenvat credit account itself. As such, in my views to apply the provisions of Rule 8(3A), requiring the assessee to pay duty out of PLA during the period of default would not apply to the provisions of Rule 6(3)(b) payments.
5. In any case, I find that the appellants have contended that they are regularly making payments from PLA, if the demand in question is held to be payable from PLA, they are admittedly entitled to make a re-credit entry in their Cenvat credit account as they have already debited the said amount from their Cenvat credit account. The said credit would again be available to the appellants to discharge duty on the final products cleared from their factory. As such, I find that the entire exercise is revenue neutral, thus making the demand against the appellant as un-sustainable.
6. Further, as regards the clearance of inputs as such, the appellants have debited the amount from their cenvat credit account equal to the credit availed by them. The Revenue’s stand that the same should have been paid from PLA, cannot be upheld in view of my findings above.
7. In view of the foregoing discussions, impugned order is accordingly, set aside and appeal is allowed with consequential relief to the appellants.