whether Cenvat credit allowed for inputs used in manufacture of both dutiable and exempted goods?

PJ/Case Law /2016-17/3367

Case:- COMMR. OF C. EX., CUS. & S.T., RAJKOT Versus TATA CHEMICALS LTD.

Citation:- 2016 (342) E.L.T. 311 (Tri. - Ahmd.)

Issue: - whether Cenvat credit allowed for inputs used in manufacture of both dutiable and exempted goods?
Brief facts:- This appealwasfiled by the Revenue against OIA-99/2007/COMMR-A-/RAJ, dated 3-5-2007 passed by the Commissioner of Central Excise (Appeals), Rajkot.
In brief, thefacts of the case were that the appellants were engaged in the manufacture of excisable goods falling under Chapters 28 and 29 of CETA, 1985. A show cause notice was issued to the appellant on 10th March, 2006, alleging wrong availment of Cenvat credit on “Furnace Oil” used as fuel and other inputs used in the generation of electricity, which in turn utilized in the manufacture of dutiable goods as well as exempted/non-excisable goods. It was alleged that the appellant had not maintained separate records for these inputs used in or in relation to the manufacture of dutiable as well as exempted/non-excisable products as required under the relevant Rules. Consequently, proportionate Cenvat credit involved on the fuel amounting to Rs. 20, 30,378/- for the period 1-10-2001 to 15-5-2005 was demanded with a proposition for imposition of penalty. On adjudication, the demand was confirmed and penalty of equal amount imposed. Aggrieved by the said order, the appellant filed an appeal before the ld. Commissioner (Appeals), who in turn, set aside the impugned order and allowed their appeal. Hence, the Revenue was in Appeal.

Appellant’s contention:- The ld. ARfor the Revenue assailing the impugned order of the ld. Commissioner (Appeals) submitted that the issue of eligibility of Cenvat credit on the input-fuel was no more res integra being settled by the Hon’ble Supreme Court in the case of CCE v. Gujarat Narmada Valley Fertilizers Co. Ltd. - 2009 (240)E.L.T.661 (S.C.). It was his contention that even though in its subsequent judgment reported as CCE, Vadodara v. Gujarat Narmada Valley Fertilizers Co. Ltd. - 2012 (286)E.L.T.481 (S.C.) the matter was referred to Larger Bench but, that cannot be a ground for not following the aforesaid ratio of the Supreme Court as held by the Larger Bench of this Tribunal, in the case of CCE, Vadodara-II v. Gujarat Narmada Valley Fertilizers Co. Ltd. vide Order Nos. A/10672-10673/WZB/ AHD/2013, dated 14-5-2013. The appeal filed before the Hon’ble Gujarat High Court against the said order of Larger Bench of the Tribunal had been dismissed. Thus, the issue on merit stands decided in favour of the Revenue.

Respondent’s contention:- The ld.Advocate, Shri Nainavati for the respondents on the other hand submitted that even though the issue on merit, was held against the respondent, however, the respondent had succeeded on limitation before the ld. Commissioner (Appeals), which had not been challenged by the Revenue. It was his contention that extended period of limitation cannot be invoked against the respondent in view of conflicting decisions on the subject at the relevant time and there had been no suppression of facts inasmuch as in absence of any statutory requirement making it mandatory on the part of an assessee, to maintain separate accounts, for input-fuels used in the generation of electricity on which Cenvat credit has been availed which in turn used both in or in relation to the manufacture of dutiable goods and exempted/non-excisable products. Therefore, the respondent had a strong case on limitation.

Reasoning of judgment:- The Hon’ble judge found that the issue on merit had been decided in favour of the Revenue by the Hon’ble Supreme Court in the case of Gujarat Narmada Valley Fertilisers Co. Ltd. in its decision dated 17-8-2009. Adopting the said ratio, even after the issue had been referred to the Larger Bench, in its subsequent judgment dated 11-12-2012, the Larger Bench of this Tribunal decided the same in favour of the Revenue which had been held to be proper by the Hon’ble Gujarat High Court reported in 2014 (306)E.L.T.315 (Guj.). In view of the above, they did not have any doubt to hold that on merit the Revenue succeeds.
However, on the issue of limitation and penalty the ld. Commissioner (Appeals) recorded his findings as follows :
“As regards the imposition of penalty and invocation of extended period, I find that the appellant has rightly availed and utilized the Cenvat Credit on input used as fuel, and they have not required to follow the procedures as laid down under Rule 57AD of the Central Excise Rules, 1944, Rule 6(1), (2) and (3) of the Cenvat Credit Rules, 2002/the Cenvat Credit Rules, 2004, the appellant is not liable for penalty under the Central Excise Laws. The appellant has followed the procedures as per the law; therefore, they are not liable for any penalty. As regards the invocation of extended period, I find that the contention of the appellant that they have already shown the names of inputs which are used in their final products, hence there is no suppression of any facts or misdeclaration. They further contended that when the provisions of Rule 57AD of the Central Excise Rules, 1944, Rule 6(1), (2) and (3) of the Cenvat Credit Rules, 2002/the Cenvat Credit Rules, 2004 are excluded to maintain separate accounts for inputs used as fuel, they have not maintained the separate accounts of such inputs. Therefore, the Department’s allegation regarding the appellant has not maintained separate accounts for such inputs and hence the appellant has suppressed the facts, has no legal force, as the appellant has not required to maintain separate accounts for such inputs because the same is excluded by the legal provisions during the relevant periods. Therefore, order for imposition of penalty under Section 11AC of the Central Excise Act, 1944 and invocation of extended period under proviso to 11A of the Central Excise Act, 1944 is also liable for set aside.”
They found that the Revenue had not specifically challenged the findings of the ld. Commissioner (Appeals) on limitation and penalty in their grounds of appeal. However, the ld. AR for the Revenue had submitted that since the respondent had not disclosed the facts to the Dept. about the use of fuel in the generation of electricity which, ultimately was used in or in relation to the manufacture of dutiable goods and exempted/non-excisable products, by maintaining separate accounts; therefore, larger period of limitation could be invoked. Countering the said argument, the ld. Advocate for the respondent had submitted that for the inputs used as fuel in the generation of electricity, no separate accounts were required to be maintained, being specifically excluded under Rule 57AD of the erstwhile Central Excise Rules, 1944 and also under Rule 6(2) of Cenvat Credit Rules.
They found force in the contention of the ld. Advocate for the respondent. Accordingly, they did not see any deficiency in the observation of the ld. Commissioner (Appeals) in holding that the demand cannot be sustained for the extended period and penalty cannot be imposed under Sec. 11AC of CEA, 1944. In the result, the order of the ld. Commissioner (Appeals) was upheld in setting aside the demands for the extended period of limitation and penalty imposed. Appeal and cross-objection disposed of.

Decision:- Appeal disposed of

Comment:-The essence of this case is that the Cenvat credit of input-fuel used in generation of electricity was no more res integra as was settled by the Hon’ble Supreme Court in the case of CCE v. Gujarat Narmada Valley Fertilizers Co. Ltd. Even though subsequent case lies pending before larger bench the ratio was applicable on the case in hand which clearly states that separate records are to be maintained for inputs used in manufacture of exempted and dutiable goods. But as the case was barred by limitation and invoking extended period in a litigious issue was not tenable the appeal was dismissed.

Prepared by:- Monika Tak

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PJ/Case Law /2016-17/3367

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