Whether inability to comply with provision can lead to confirmation of demand?

PJ/CASE LAW/2015-16/2885

Case:-COMMISSIONER OF C. EX., JAIPUR-I/JALLANDHAR VERSUS GOYAL PROTEINS LTD.

Citation:- 2015 (325) E.L.T. 165 (Tri. - Del.)

Brief Facts:-Since the issue involved in these appeals is identical, the same were heard together and are being disposed of by a common order. The respondent in Appeals No. E/1471 and 1472/2006-EX(DB) are manufacturers of refined vegetable oil. The period of dispute is from 1-12-2003 to 28-2-2005. In course of refining of vegetable oil, acid oil arises. During the period of dispute while the refined vegetable oil was dutiable the acid oil was fully exempt from duty. The department invoking Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 demanded 8% of the sale value of the acid oil on the ground that the respondent have not maintained separate account and inventory of the input/input services used in or in relation to the manufacture of exempted final products and dutiable final products, while they had availed Cenvat credit in respect of those input/input services. It is on this basis that the demands of the amounts of Rs. 2,48,733/- and Rs. 1,59,704/- were confirmed against the respondent under Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 by two separate orders passed by the Asst. Commissioner along with interest thereon under Section 11AC and equal amount of penalty were imposed. These orders of the Asstt. Commissioner were set aside by the Commissioner (Appeals) by a common order-in-appeal against which these appeals have been filed by the Revenue. In case of Appeal No. E/723/2007-Excise the respondent were manufacturing Dextrose Monohydrate and Dextrose Anhydrous, which attracted Central Excise duty and in course of manufacture of these products, a by-product viz. Hydrol arose, which was fully exempt from duty. In this case also, since the common Cenvat credit availed inputs were being used during the period of dispute from October, 1999 to September, 2004 and the department was of the view that the appellant have not maintained separate accounts and inventory of the inputs/input service meant for dutiable final products and exempted final products, by invoking Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 and earlier Rule 57CC of the Central Excise Rules, 1944 a show cause notice was issued for demanding an amount of Rs. 2,65,206/- from the respondent along with interest thereon under Section 11AB and also for imposition of penalty under Rule 13 of the Cenvat Credit Rules, 2002/2004. The show cause notice was adjudicated by the Asstt. Commissioner who vide order dated 28-1-2005 dropped the proceedings. The department filed a review appeal before the Commissioner, who vide order-in-appeal dated 31-10-2006 dismissed the Revenue’s appeal. Against this order of the Commissioner (Appeals), these appeals have been filed by the Revenue.

Appellants Contention:-Shri R.K. Grover, ld. Departmental Representative assailed the impugned order by reiterating the grounds of appeal and pleaded that since the respondent in these cases while using common Cenvat credit availed inputs/input services in or in relation to the manufacture of dutiable final products/exempted final products, have not maintained account/inventory and have not confined the Cenvat credit availment only to the input/input services meant for dutiable final products, the provisions of Rule 6(3)(b) would be attracted and hence, the impugned orders upholding the dropping of the demands under Rule 6(3)(b) are not correct.

Respondents Contention:-Ms. Surabhi Sinha, Advocate ld. Counsel representing M/s. Goyal Proteins Ltd. and Shri A.C. Jain, Advocate, ld. Counsel representing Sukhjit Starch & Chemicals Ltd. pleaded that in these cases, the exempted by-products viz. acid oil in course of manufacture of refined vegetable oil and Hydrol in the course of manufacture of Dextrose Monohydrate and Dextrose Anhydrous had emerged as unavoidable and inevitable by-products, that in these circumstances, it was impossible for the respondent to maintain separate accounts and inventory of the inputs meant for dutiable final products and exempted final products and as such, in these cases, provisions of Rule 6(2) read with Rule 6(3)(b) of Cenvat Credit Rules, 2004 would not apply, that in this regard, they rely upon Hon’ble Bombay High Court’s judgment in the case of Rallies India Ltd.v. Union of India reported in 2009 (233) E.L.T. 301 (Bombay) and also the judgment of the Tribunal in the case of Narmada Gelatinreported in 2009 (233) E.L.T. 332 (Tribunal). It was, therefore, pleaded that there is no infirmity in the impugned orders passed by the Commissioner (Appeals).

Reasoning of Judgement:-The tribunal have considered the submissions from both the sides and perused the records. In these cases, while the main product being manufactured by the respondent i.e. refined vegetable oil being manufactured by M/s. Goyal Proteins and Dextrose Monohydrate and Dextrose Anhydrous being manufactured by M/s. Starch Chemicals were dutiable final products and the respondent have availed Cenvat credit in respect of input/input services used in the manufacture of these dutiable final products. In course of manufacture of these dutiable final products, some by-products exempt from duty also arose. Acid oil emerges in the manufacture of refined vegetable oil and during the manufacture of Dextrose Monohydrate and Dextrose Anhydrous, a by-product viz. Hydrol emerges. In these circumstances of the case, it was impossible for the respondents to maintain separate account and inventory of the inputs/input services meant for dutiable final products and exempted final products as this can be done only if two different final products, one dutiable and the other exempted are being manufactured consciously. When compliance of a provision is impossible, an assessee cannot be penalized for his failure to comply with the same. Lex non cogit ad impossibilia is a well settled legal principle. It is for this reason only that the Hon’ble Bombay High Court in the case of Rallies India Ltd.(supra) and the Tribunal in the case of Narmada Gelatin(supra) had held that the provisions of Rule 6(2) read with Rule 6(3)(b) of Cenvat Credit Rules, 2002/2004 would not be applicable in such cases when in course of manufacture of dutiable final products some exempted final products also emerge as inevitable by-product. In view of this, we do not find any infirmity in the impugned orders. The Revenue’s appeals are dismissed.

Decision:-Appeals dismissed.

Comment:- The analogy in the case is that if on the manufacturing of a dutiable final product some exempted by product also emerges then, as it is impossible for the assessee to maintain separate records for dutiable and exempted final products because this can be done only if the dutiable as well as exempted final products are manufactured consciously. So, when the compliance of a provision is impossible, an assessee cannot be penalized for his failure to comply with the same. This contention was based on the well settled legal principle Lex non cogit ad impossibilia and also on the landmark decision in the case of Rallies India Ltd.v. Union of India.Accordingly, the demand of 8% reversal on clearance of exempted by-product was quashed.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2885

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