Discharge of Liability under Rule 6 of CCR, 2004

PJ/Case Laws/2011-12/1393

Case: S.D. FINE CHEM LTD. v/s COMMISSIONER OF C. EX., THANE-II

Citation: 2011 (271) ELT 308 (Tri.-Mumbai)

Issue:- Chemicals purchased from market and re-packed as such or after dilution by using Cenvated packing – whether can be said to be manufacture of exempted goods for the purpose of Rule 6 of CCR, 2004?

Brief Facts:- Appellants were engaged in the manufacture of various chemicals falling under Chapter Nos. 11, 15, 17, 28, 29, 34, 35, 38, 39, 81 etc. of CETA, 1985. They availed CENVAT credit in respect of inputs used in or in relation to the manufacture of final products. Some of the common inputs used were Glass Bottles, Plastic Bottles, Plastic Carboys, printed cartons, self adhesive tapes and other packing materials.

Department alleged that during the period from 1-4-2005 to 31-3-2006, appellant had used common inputs viz. packing materials in or in relation to the manufacture of excisable goods as well as exempted goods without maintaining separate records and inventory of receipt and consumption of the inputs used for manufacture of duplicable final products and exempted final products, as required under Rule 6(2) of CENVAT Credit Rules, 2004. Show cause notices were issued for recovery of amount along with interest under Rule 6(3)(b) of CENVAT Credit Rules, 2004 and also for imposition of penalty on the appellant.

In the course of adjudication proceedings, appellants had pleaded that there was no manufacturer of exempted final products and what the department alleges to be manufacture of exempted finished goods was the goods purchased from the market and sold after packing and re-labeling, in some cases after dilution and such trading activity did not amount to manufacture and for this reason the provisions of Rule 6(3)(b) of CENVAT Credit Rules, 2004 were not attracted. But this plea was rejected.

The Additional Commissioner confirmed the demand under Rule 6(3)(b) along with interest and also imposed penalty of equal amount on the appellant-company. Penalty was also imposed on Shri. Shantilal D. Tolia, Managing Director and Shri Sanjiv S. Tolia and Mrs. Hita S. Tolia both Directors of the Appellant-Company.

On appeal, the Commissioner (Appeals) upheld the Addl. Commissioner's order. Against these two orders, appeals along with stay applications are filed before the Tribunal.

Appellant’s Contention:- Appellant contended that in addition to the manufacture of various chemicals falling under different Chapter of CETA, 1985, the appellants were purchasing the duty paid chemicals from the market and those chemicals were being sold after repacking/re-labeling as such, that in some cases the chemicals purchased were diluted; that none of these activities amount to manufacture; that the only lapse on the part of the appellants was that some quantity of packing materials likes glass bottles, plastic carboys, printed cartons, and self-adhesive tapes, on which CENVAT credit had been availed were also used in the packing and labelling of traded goods; that as soon as this was pointed out, the amount of CENVAT credit involved was reversed; that since the process undertaken by the them does not amount to manufacture, the provisions of Rule 6(2) read with Rule 6(3)(b) were not applicable; that though this plea was made before the Adjudicating Authority as well as the Commissioner (Appeals) no reason has been given for rejecting this plea and that in view of this, the impugned order is not correct.

Respondent’s Contention:- Revenue argued that the appellants have manufactured, besides the dutiable final products the excisable goods which are fully exempt from duty and that same are covered by the definition of exempted goods, and that since the appellants have not maintained separate inventory and account of the inputs intended for use in the manufacture of dutiable final products and exempted final products, as per the provisions of Rule 6(2), amount has been correctly demanded in respect of clearance of exempted goods and the penalties has been correctly imposed on the appellant company and its directors.

Reasoning of Judgment:- The Tribunal found that Lower Authorities have not given any reasons for dismissing the plea of the appellants that there was no manufacture of any excisable goods which were fully exempted from duty or are chargeable to nil rate of duty and some of the chemicals purchased from the market had been re-packed as such or after dilution by using cenvated packing material and that the same does not amount to manufacture. The Tribunal found that on the contrary the Adjudicating Authority in the order has held that even if the assessee is manufacturing non-excisable goods, the situation does not change in any way and once the assessee has admitted that they have availed and utilised CENVAT credit in respect of the products which are exempt or non-excisable, the provisions of Rule 6(3)(b) of CENVAT Credit Rules, 2004 would be applicable.

The Tribunal perused the provisions of Rule 6 (2) of the Cenvat Credit Rules, 2004 and noted that it is clear that this rule is applicable when the manufacturer avails of Cenvat credit in respect of any inputs which have been used in the manufacture of dutiable as well as exempted goods. Referring to the definition of “exempted goods” given in Rule 2 (d) of CCR, 2004, it was held that the “exempted goods: referred to in Rule 6 (2) have to be excisable goods i.e. the product of some process which amounts to manufacture and if such goods are fully exempt from duty or as chargeable to nil rate of duty, the provisions of Rule 6 (2) and 6 (3) would apply. Thus, it was held that the very basis of the impugned order that the provisions of Rule 6 (2) and 6 (3) would be applicable even if common inputs are used in the manufacture of dutiable goods as well as non-excisable goods is incorrect.

The Tribunal moreover found that no reasons have been given to reject the appellant’s plea that no manufacturing was done by them but was doing trading activity. Accordingly, impugned order set aside and matter remanded to examine whether goods alleged to be exempted were the outcome of a process of manufacture or not.

Decision:- Appeals allowed by way of remand.

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PJ/Case Laws/2011-12/1393

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