Reversal of cenvat credit on goods coming into existence during manufacture of final product, removed without payment of duty.

PJ/Case Law/2014-15/2192

Case:- TATA METALIKS Vs COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR

Citation:-2014 (33) S.T.R. 435 (Tri. - Mumbai)

Brief facts:- Applicant filed this application for waiver of pre-deposit of duty of Rs. 2,47,30,827/- and interest.
Applicants were engaged in the manufacture of pig iron. For the purpose of manufacture of pig iron, applicants were purchasing iron ore and metallurgical coke as basic inputs and during the process of screening iron ore fine and coke breezes came into existence. Applicants were clearing iron ore fines and coke breezes without payment of duty. The case of the Revenue was that as the applicants were taking credit in respect of common inputs, therefore applicants were liable to pay 5% /10% of the price of the exempted goods as applicants were not maintaining separate records

Appellant’s contentions:- The contention of the applicants was that the main raw materials i.e. iron ore and metallurgical cokes were not dutiable hence no credit had been availed in this regard. Applicants were only availing Cenvat credit of the Service Tax paid on the GTA services and the total credit attributable to the iron ore fines and coke breeze comes to approximately Rs. 8.00 lakhs.
The contention of the applicant was that the provisions of Rule 6 of the Cenvat Credit Rules were retrospectively amended to the effect that a manufacturer had to reverse credit proportionately in relation to the exempted goods. Hence the demand was not sustainable.

Respondent’s contentions:- The Revenue submitted that as the goods were not produced in the factory and cleared at nil rate of duty, therefore the applicants were liable to pay 5%/ 10% of the price of the goods as per the provisions of Rule 6 of the Cenvat Credit Rules.

Reasons of judgment:- The applicants were procuring iron ore and metallurgical coke and they were only screening the same and during the process of screening the iron ore fine and coke breeze came into existence which was not fit for use in the manufacture of pig iron and the same were being cleared without payment of duty. As the provisions of Rule 6 of the Cenvat Credit Rules were amended retrospectively and the manufacturer had to reverse the credit proportionate to the inputs used in or in relation to the manufacture of the exempted goods, the applicants were directed to deposit Rs. 8,00,000/- (Rupees eight lakhs only) within six weeks. On deposit of the above mentioned amount, pre-deposit of the remaining duty was waived and recovery thereof stayed during the pendency of the appeal.

Decision:- Stay partly granted.

Comment:- The analogy drawn from the case is that Credit proportionate to input used in or in relation to manufacture of exempted goods is required to be reversed as required under the Provisions of Rule 6 of Cenvat Credit Rules, 2004 amended retrospectively. Thus the assessee is required to reverse cenvat credit on goods coming into existence during manufacture of final product, removed without payment of duty.

Prepared by:- Ranu Dhoot

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PJ/Case Law/2014-15/2192

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