Whether credit reversal @5% required when assessee clears dutiable branded garments and exempted unbranded garments simultaneously and credit availed on defective branded goods for repairs under Rule 16?

PJ/Case Study/2012-13/77

Case study

Prepared by: CA Neetu Sukhwani &
Hushen Ganodwala

Introduction:-M/s KTF Fashion Pvt. Ltd. is engaged in the manufacture of branded and unbranded readymade garments. Branded readymade garments were dutiable as per notification no. 29/2004-CE whereas unbranded readymade garments were liable to Nil rate of excise duty under notification no. 30/2004-CE and were cleared without payment of duty. As the assessee was clearing branded goods on payment of duty under notification no. 29/2004-CE, they also availed cenvat credit of inputs used in the manufacture of said branded goods. Moreover, they also received defective branded garments for repair purpose and also took credit on their receipt under Rule 16 of the Central Excise Rules. However, the revenue department noticed that as the assessee was not maintaining separate accounts for the receipt, consumption and inventory of inputs used in or in relation to manufacture of exempted goods, it was contended that the assessee were required to pay amount equal to 5% of duty on total assessable value of exempted goods as per Rule 6 of the Cenvat Credit Rules, 2004. The assessee submitted that for earlier period they were availing credit on common inputs and input services by opting for proportionate reversal but after June, 2011 they have stopped availing credit on common inputs and input services and so the demand for the month of September, 2011 for credit reversal @ 5% is not sustainable. It was also clarified that the credit taken on the defective branded goods received for repair purpose under Rule 16 was with respect to branded goods only which were not exempted and so no credit was taken with respect to exempted unbranded goods. Therefore, it was contended that the provisions of Rule 6 are not applicable in the present case and that the show cause notice has been erroneously issued to them and the same was required to be quashed. The submissions made by the assessee after verification were accepted by the adjudicating authority who dropped the proceedings issued vide the impugned show cause notice. However, consequent to the review proceedings initiated for the said order in original dropping the show cause notice, the adjudicating authority was directed to prefer an appeal against the said order to the Commissioner Appeals. The present case study covers the decision of the Commissioner Appeals pursuant to the appeal filed by the revenue department.

KTF Fashion Pvt. Ltd., Ahmedabad [OIO.No. 001/KCU/SUPDT/13-14 Dt. 26.04.2013]

Relevant legal provisions:-

Ø Rule 6 of the Cenvat Credit Rules, 2004.
Ø Rule 16 of the Central Excise Rules, 2002.

Issue Involved:-The following issue was made before the Commissioner Appeals:-

Whether credit reversal @5% required when assessee clears dutiable branded garments and exempted unbranded garments simultaneously and credit availed on defective branded goods for repairs under Rule 16?

Brief Facts:-M/s KTF Fashions Pvt. Ltd., (hereinafter referred to as “the respondent”) are engaged in the manufacture of readymade garments falling under Chapter 61 of CETA 1985 and are availing facility of Cenvat Credit under CCR, 2004 with respect to branded readymade garments cleared on payment of duty under notification no. 29/2004-CE.
The present appeal dated 22.07.2013 has been filed by the department (hereinafter referred to as “appellant”) against OIO No. 01/KCS/Supdt./13-14 dated 26.04.2013 passed by the Superintendent, C.Ex. AR-I, Div.-IV, Ahmedabad (hereinafter referred to as “adjudicating authority”). The impugned order has been reviewed by the Commissioner, Central Excise, Ahmedabad-I on 12.06.2013.

During the scrutiny of ER-1 returns filed by the respondent for the month of September-2011, it was found by the Range officers that in ER-1, the respondent had taken Cenvat Credit as per CCR, 2004 and cleared branded readymade garment on payment of normal rate of duty. It was also noticed that they had cleared their unbranded readymade garments valued Rs. 6,07,715/- without payment of duty by availing benefit of Notification No. 30/2004-CE dated 09.07.2004, as amended. It was also noticed that the respondent were not maintaining separate account for the receipt, consumption and inventory of inputs used in or in relation to manufacture of exempted goods. As per Rule 6(3)(i) of Cenvat Credit Rules, 2004, if the respondent does not maintain separate account for receipts, consumption and inventory of inputs used in or in relation to the manufacture of exempted goods, they are required to pay an amount equal to 5% of the value of the exempted goods.

Show-Cause-Notice No. AR-I/SCN/KTF/2012-13 dt. 17/09/2012 was issued by the Superintendent of Central Excise, AR-I, Dn. IV, Ahmedabad-I to the respondent as to why:

      i.        The amount of Rs. 30,386/- i.e. the amount equal to 5% of value of exempted goods should not be recovered from them as per Rule 6(3)(i) of Cenvat Credit Rules, 2004, under Rule 14 of Cenvat Credit Rule, 2004, read with Section 11 A of CEA, 1994,;
     ii.        Penalty under Rule 15A of CCR 2004 read with Rule 25 of Cenvat Credit Rules, 2004 should not be imposed on them and ;
    iii.        Interest at the prescribed rate should not be recovered from them under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB of CEA, 1944.
The Adjudicating Authority vide OIO No. 001/KCU/Supdt./2013-14 dated 26/04/2013 dropped the said demand of Rs. 30,386/- after observing that the credit taken of Cenvat Credit in ER-1 is not credit taken of inputs but actually credit taken of the Central Excise duty involved in the return goods under Rule 16 of Central Excise Rule, 2002.
Being aggrieved by the impugned order, an appeal dated 22/07/2013 has been filed by the appellant on the following grounds:-
That the adjudicating authority has erred in dropping demand by accepting that the Credit availed during the period September-2011, as mentioned in ER-1 returns filed by them, was not of inputs but actually credit taken on the returned goods during the relevant period under Rule 16 of Central Excise Rules, 2002. Rule 16 of the Central Excise Rules, 2002 as amended, reads as follow.
Rule 16: Credit of duty on goods brought to the factory.

(1) Where any goods on which duty had been paid at the time of removal of thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the Cenvat Credit Rules, 2002 and utilize this credit according to the said rules.

(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1)and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-rule (2) of section 3 or section 4 or section 4A of the Act, as the case may be.

That the Adjudicating authority has erred in dropping demand by accepting that the Credit availed was not of inputs but actually credit taken on returned goods during the relevant period under Rule of 16 of Central Excise Rule, 2002. As it is very clear from the language of Rule 16(1) that the credit taken in respect of such returned goods is equivalent to such goods being treated as inputs and therefore, the consequential credit would be treated as input credit only. As per Rule 6(3)(1) of Cenvat Credit Rule, 2004 if the assessee is manufacturing dutiable and exempted products and also taking input credit and not maintaining separate records for receipt, consumption and inventory of inputs used in or in relation to the manufacture of exempted goods, they were required to pay an amount equal to 5% of value of the exempted goods.

That the Adjudicating authority has erred in vacating the SCN dated 17.09.2012 demanding recovery of Rs. 30,386/- in respect of M/s Fashions Pvt Ltd, Ahmedabad. Hence, the above referred Order-In-Original is not legal and proper and requires being appealed against and setting aside the impugned order.
Personal hearing was fixed in the matter on 08.10.2013 and Shri Pradeep Jain, Chartered Accountant appeared on behalf of the respondent and reiterated the submission made earlier vide their cross objections and requested to upheld the impugned OIO and reject the department’s appeal.

Respondent Contentions:-The respondent filed following cross objections in support of upholding the order in original dropping the show cause notice issued on the matter against them:

1) The respondent submits that the impugned appeal filed by the department is wholly and totally erroneous and is liable to be quashed and the order in original no. 001/KCU/Supdt./13-14 dated 26.04.2013 should be upheld.

2)            The respondent submits that the revenue has preferred appeal on the grounds that the adjudicating authority has incorrectly passed the order in original upholding the contention of the respondents that they were not required to pay an amount equal to 5% of value of exempted goods cleared by them. The review order on the basis of which the appeal has been filed by the department has contended that the order has held that the Credit availed during the period in dispute was not of inputs but was the credit taken on the returned goods under the provisions of Rule 16 of the Central Excise Rules, 2002. It has been held that even the credit on the returned goods under rule 16 is also deemed as the credit availed on the inputs and is accordingly held that the provisions of rule 6(1) of the Cenvat Credit Rules, 2004 are hit and the respondent was liable to pay the an amount equal to 5% of the value of exempted goods. In other words, it is submitted that the impugned appeal has been filed on the grounds that the availment of credit on the returned goods attracts the provisions of rule 6(1) of the Cenvat Credit Rules, 2004 and the respondents were supposed to pay an amount equal to 5% of the value of exempted goods. In this regard, it is submitted that as per allegation of impugned order in review, they were supposed to pay the 5% of the value of exempted goods in terms of rule 6(3) of the Cenvat Credit Rules, 2004 as they had availed the credit on rejected goods which are the inputs only and have not maintained the separate records pertaining to the inputs. For the sake of understanding, the sub rules 1, 2 and 3 of rule 6 are produced as follows:-

“Rule 6 Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.-

(1) The Cenvat Credit shall not be allowed on such quantity of input or input services which is used in the manufacture of [exempted goods or for provision of exempted services,] except in the circumstances mentioned in sub-rule (2).
[Provided that the Cenvat Credit on inputs shall not be denied to job worker referred to in Rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.]
(2) Where a manufacturer or provider of output service avails of Cenvat Credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input services meant for use in the manufacture of dutiable final products or in providing output services and the quantity of input meant for use in the manufacture of exempted goods or services and take Cenvat Credit only on that quantity of input or input services which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service; opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely:-
[(i) the manufacturer of goods shall pay an amount equal to five per cent of value of the exempted goods and the provider of output service shall pay an amount equal to six per cent of value of the exempted services; or]
(ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the Cenvat Credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A)……..”
The analysis of the above three sub-rules of Rule 6 makes it ample clear that:-
·         Rule 6(1) says that credit cannot be taken on that part of input/input services that are used in the manufacture of exempted goods/services.
·         Rule 6(2) says that credit of common inputs/input services is allowed if separate records of receipt and consumption of those inputs/input services that are used in the manufacture of exempted goods/services are maintained.
·         Rule 6(3) says that if the separate records are not maintained, the manufacturer is required to pay an amount of 5% of the value of exempted goods or is liable to do proportionate reversal as per the formula prescribed in Rule 6(3A).

In nutshell, it is clear that all the sub rules are to be read in sequence and that the provisions of Rule 6(2) and Rule 6(3) are applicable only in case of common inputs/input services. However, the respondent has not taken cenvat credit of any of the common inputs/input services that pertained to both branded products cleared on payment of duty and unbranded products cleared without payment of duty and rather the credit availed pertained to only the defective branded products that were already cleared on payment of duty. Therefore, there was no embargo on availing the credit of the defective branded goods that were received for the purpose of repair and moreover, the credit taken was reversed back on the subsequent clearance of the repaired branded goods and so infact, no credit was availed and consequently there was no contravention of any of the provisions of the Central Excise Laws including that of Rule 6 of the Cenvat Credit Rules, 2004. Therefore, the impugned appeal filed by the revenue is devoid of merits and deserves to be quashed.

3)            In continuation to above it is reiterated that if the credit is availed in respect of inputs that are used in the manufacture of dutiable goods, the provisions of rule 6(3) are not attracted as already explained in the forgoing paras. Further, the respondents have duly availed the credit on the rejected goods in accordance with rule 16 of the Central Excise Rules, 2002. This rule is already produced in the review order and it is summarized as follows:-
·         Rule 16(1) says that where the duty paid goods are received back to the factory for the purpose of being re-made, refined, re-conditioned or for any other reason, the credit will be allowed as if these goods are received as inputs.
·         As per rule 16(2), after carrying the appropriate process the goods will be cleared on payment of excise duty if the process carried on the returned goods amounted to manufacture. If the process employed on the returned goods does not amount to manufacture, the goods will be cleared after reversing the credit initially availed at the tSime of receipt of rejected goods.
The respondents have complied with the above referred provisions duly and this fact has not been disputed during the entire proceedings. In this respect it is submitted that the credit was being availed on the rejected branded goods that were initially cleared on payment of appropriate duty. After carrying out the repairs, re-fitting, etc., they had cleared the same in accordance with the rule 16(2) of the Central Excise Rules, 2002. Thus, the credit that was availed at the time of receipt of rejected goods stands paid back at the time of clearance of goods. Therefore, even if it is accepted for the sake of argument also that the credit availed on the rejected goods attracts the provisions of rule 6(3) of the Cenvat Credit Rules, 2004, then too, no demand is sustainable as the credit so availed has already been reversed. In this regard, it is submitted that hon’ble Supreme Court has decided that the reversal of credit amounts to non-taking of Cenvat Credit. This decision is discussed as follows:-

·         CHANDRAPUR MAGNET WIRES (P) LTD. VS COLLECTOR OF C.EX., NAGPUR [1996 (81) E.L.T. 3 (S.C.)]

“We see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in the manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods. [para 7]
In the above cited judgment, it has been held that the reversal of credit tantamount to non-availment of credit. The Supreme Court opined that the debit entry itself shows the reversal of credit availed and so it cannot be concluded that cenvat credit was taken. In this case, by doing the reversal the assessee had claimed the benefit of exemption notification which gave exemption only if the credit was not taken. By upholding the contention of the assessee, hon’ble Supreme Court had allowed the benefit of exemption notification by taking the view that the reversal of credit amounts to non availment of credit. In the present case, the respondent have availed credit on the receipt of the defective branded products under rule 16(1) of the Central Excise Rules, 2002. This credit was subsequently reversed at the time of clearance of the said repaired branded goods as per rule 16(2) of the Central Excise Rules, 2002. Thus, in the light of above cited judgment, the ratio of the decision that the reversal of credit amounts to non availment of credit holds good here also. Therefore, even if it is accepted for the sake of argument also that the allegation of the impugned review order is correctly stating that the availment of credit on rejected duty paid goods attracts provisions of rule 6, then too, since the credit stands reversed; no liability can be confirmed against the respondents. Hence, extending the benefit of the above cited decision, the impugned appeal filed by the revenue should be set aside as being totally erroneous.

4)            The respondent further submit that the provisions of rule 6 are not attracted otherwise also in the instant case as they had maintained the separate records in respect of the inputs pertaining to the dutiable goods and exempted goods. In this regard, it is stated that the respondent is engaged in manufacture of branded and unbranded goods. The branded goods are cleared on payment of excise duty under provisions of notification no. 29/2004-CE and unbranded goods are cleared under provisions of notification no. 30/2004-CE by availing full exemption. It is further submitted that they are clearing the branded goods after availing the facility of Cenvat Credit and paying the excise duty on their clearance. In this respect, it is submitted that they had availed credit only in respect of the dutiable (branded) goods and no credit was actually availed in respect of goods used for manufacture of the exempted (unbranded) goods. Also, the credit availed by them has direct co-relation with the dutiable goods as the goods in issue are branded goods that were initially cleared on payment of excise duty. The credit was availed on these goods when received back for repairs and the same were re-cleared after reversing the credit. Thus, there is direct correlation of credit availed to the dutiable goods. Also, the fact that the assessee can opt for notification no. 29/2004-CE and notification no. 30/2004-CE simultaneously is clarified by the Board Circular No. 795/28/2004-CX., dated 28-7-2004. The relevant part of this circular is produced as follows:-

“Issue No. (1) :
Can a manufacturer of textiles or textile articles avail full exemption under Notification No. 30/2004-C.E. as well as clear similar or dissimilar goods on payment of duty under Notification No. 29/2004-C.E. simultaneously?
Clarification :

Notification No. 29/2004-C.E. (prescribing optional duty at the rates of 4% for pure cotton goods and 8% for other goods) and No. 30/2004-C.E. (prescribing full exemption) are independent notifications and there is no restriction on availing both simultaneously.However, the manufacturer should maintain separate books of account for goods availing of Notification No. 29/2004-C.E. and for goods availing of Notification No. 30/2004-C.E.”
In view of above clarification, the assessee can avail the benefit of both the notifications simultaneously if he is able to correlate which goods are used in manufacture of branded goods and which goods are used in manufacture of unbranded goods. This is clearly evident from the facts narrated hereabove and witness by the books of accounts maintained by the respondent. Therefore, since the credit availed and dutiable goods cleared are co relatable, the impugned appeal filed by the department to demand the 5% of value of exempted goods on the ground that the credit has been availed on the returned goods, is not tenable and is liable to be set aside.

5)            In continuation to the above and without prejudice to the above submissions, the respondent also submits that it is well settled fact that when a demand is raised, its consequential benefits also accrue to the assessee. Therefore, when the demand of 5% of the exempted value of goods is being appealed for confirmation then the total cenvat credit attributable to both dutiable branded goods and the exempted unbranded goods would be admissible to them. Accordingly, the revenue is not allowed to take only that stand that is beneficial to them and the consequential benefits of the demand ought to be extended to them. The respondent also wishes to mention that it is a set rule that when the duty liability arises, subsequent benefits should also accrue to the assessees. Reliance is placed on following decisions:-

Ø M/s Shah Yarn Tex (P) Ltd. Vikash J Shah vs Commissioner of Central Excise, Coimbatore [2008-TIOL-1975-CESTAT-MAD.]:-

In this case, the appellant had cleared the mercerized without payment of duty. On confirmation of demand, they had asked to utilize the Cenvat Credit accumulated with them. The lower authorities rejected this request by saying that they have not followed the procedural provisions like filing the declaration, etc. Hon’ble tribunal has decided the case in favour of the appellant by saying that where the demand is confirmed against the assessee, they should be allowed the substantive right emerging to them in consequence of the confirmation of the demand.

Ø Further, in the case of S.R. SPRINGS PVT. LTD. Versus COMMISSIONER OF C. EX. & CUS., BBSR-II [2002 (150) E.L.T. 757 (Tri. - Kolkata)], hon’ble Tribunal has allowed the Cenvat Credit on inputs to the appellants while confirming the demand for clandestine removal of goods. This case was maintained by the Highest Court of India and the judgment was reported at2003 (154) ELT A180 (Supreme Court).

Ø It has also been held in the case of SUPER STEEL MFG. CO. (P) LTD. Versus COMMISSIONER OF CENTRAL EXCISE, INDORE [2003 (152) E.L.T. 166 (Tri. - Del.)] that if the demand is confirmed credit should be allowed.

The analysis of these decisions makes it clear that in the cases where demand is confirmed the related benefit of Cenvat Credit should be allowed. In the case of respondent also, they strongly believe that they have not contravened any of the provisions of the law and are not liable to pay 5% of the value of exempted goods and have made submissions in this regard but when demand is appealed to be confirmed against them, the entire amount of credit is allowable to them in the light of above referred decisions. Accordingly, the impugned appeal filed by the revenue should be set aside and the order in original should be upheld.

6)            Aligning with the above, it is also submitted that the provisions of the Rule 6(3)(1) are also not applicable as there is one to one co-relation of the cenvat credit availed by the respondent on the receipt of the defective branded goods and its subsequent reversal by them on their clearance after repairs. Further, it is not disputed that the branded goods were initially cleared on payment of duty by the respondent and the credit availed by the appellant was in respect of those goods only that have been received for the purpose of repairs. Also, after carrying out the repairs, the goods were cleared back after reversing the credit and this fact is not disputed by the department. Therefore, it cannot be contended that the availment of credit on the goods exclusively attributable to dutiable goods, hits the provisions of rule 6 of the Cenvat credit Rules, 2004 which are attracted only if the credit is availed on the inputs EXCLUSIVELY used in the manufacture of dutiable goods or if the credit is availed on the COMMON inputs. Since none of these two conditions are satisfied, the provisions of rule 6 are not attracted. Even if it is accepted for the sake of argument also that the provisions of rule 6 are attracted, then too, the demand is not sustainable as the credit availed was subsequently reversed which amounts to non availment of cenvat credit as per decision of hon’ble Supreme Court in the case of M/s Chandrapur Magnet Wires. Accordingly, the invocation of the provisions of Rule 6(3)(1) is not at all understandable and is totally erroneous. As such, the impugned appeal filed by the revenue is liable to be set aside.

7)            Notwithstanding the above submissions, it is submitted that the impugned appeal has been filed by the department without following the proper procedure laid down under the provisions of Central Excise Act, 1944 and rules framed thereunder. In this regard, your kind attention is invited to some of the discrepancies found by the respondents in the appeal memo filed by the department which was received by them vide letter no. V2 (61) 4/EA2/Ahd-I/13/5934 dated 25.7.2013. In this respect, it is submitted that the format of EA-2 prescribed under section 35E(4) of the Central Excise Act, 1944 states that this form should have following components:-
(i)            Table showing details of the case – name of applicant, his designation, name and address of the respondent-assessee, details of order, period and amount in dispute, relief claimed in appeal, etc.
(ii)           Statement of Facts.
(iii)          Grounds of Application.
(iv)          Signature of the Applicant.
The format of EA-2 downloaded from the website of Central Board of Excise and Customs is enclosed herewith in Annexure - for the sake of convenience. The analysis of above makes it ample clear that the above ingredients are must for a legally valid EA-2 without which the application/appeal filed by the department cannot sustain. It is worth mentioning here that the appeal filed by the department do not have separate Statement of Facts and Grounds of appeal. In the column of “Relief claimed in the appeal”, it is written as follows:-
“The Commissioner (Appeals) may be pleased to set aside the impugned OIO passed by the Superintendent of Central Excise of AR-I, Division-IV (Narol), Ahmedabad-I and the duty so calculated should be confirmed, alongwith appropriate interest, as per provisions of the law or may kindly pass an order as deemed fit after taking into consideration of the facts stated in the Review Order.”

After this table showing the details of case, the copy of review order has been enclosed. No separate statement of facts and grounds of appeal that are integral part of the EA-2 have been attached. Also, there are no signatures of the applicant as appearing on behalf of Revenue; i.e. Superintendent. Thus, the EA-2 filed by the department is not authenticated and liable for rejection in view of following judgment:-

·         COMMISSIONER OF CENTRAL EXCISE, BELGAUM Versus S.B. ENGINEERS [2009 (16) S.T.R. 318 (Tri. - Bang.)]

Appeal by Department - Defective appeal - Appeal filed by Revenue without signature of authorized person on ST-7 Form and statement of facts and grounds of appeal - Contention that defects curable, not acceptable - Appeal not signed by anybody, not maintainable - Section 86 of Finance Act, 1994. [paras 2, 3]

Strictures against Department - Appeal by Department without signature - Appeal filed by Revenue without signature of any person - Filing of appeal is a right to be exercised in responsible manner - Revenue callous in filing unsigned appeal which needs to be deprecated - Appeal dismissed as not maintainable - Section 86 of Finance Act, 1994. [paras 3, 4]

In view of above decision, it is ample clear that the unsigned appeal filed by the department is not maintainable and should be quashed. The ratio of this decision is equally applicable in the instant case where the appeal has been filed against the respondents in totally absurd manner – there is not any signature of any authorized person on behalf of department, there is no statement of facts or grounds of appeal attached to the EA-2. This shows that the statutory responsibility casted on the department while filing the appeal is not carried out in a proper manner. Merely attaching the review order to the EA-2 is not a valid manner of filing the appeal. It is worthwhile to mention here that the appeal by department is always a result of a review order which directs a particular officer of department to file appeal against the order in issue. However, the EA-2 is always accompanied by a separate statement of facts and grounds of appeal duly signed by the person authorized on behalf of the department. But in the given case, the department had not taken pain even to draft the statement of facts and grounds of appeal and sign the same, it has simply attached the review order and requested to consider the same for deciding the case. This is not at all sustainable as held in the above cited case that filing of appeal is a right to be exercised in a responsible manner. Therefore, in view of this judgment, the impugned appeal filed by the department is wholly and totally erroneous and is liable to be quashed.

8) In continuation to above it is submitted that even if it is accepted for the sake of argument also that the details of review order can be considered for the purpose of filing the appeal and deciding the case; then too, the impugned appeal is not sustainable as the said review order had directed the Assistant Commissioner to file the appeal, while in the EA-2, it has been mentioned that the Superintendent is the applicant on behalf of the department. This is not sustainable as only the person directed by the review order can file the appeal, no other person can do so. In support of their contention that the person directed to file the appeal is the Assistant Commissioner, the respondent would like to produce an extract from para no. 5 of the review order as follows:-

“5. I hereby authorize the Assistant Commissioner, Central Excise, Division-IV, Ahmedabad-I to file an appeal against the said Order-in-Original, before the Commissioner of Central Excise (Appeals-II), Ahmedabad, for correct determination of the following points arising out of the aforesaid Order-in-original:-“

The analysis of the above part of the review order makes it ample clear that the person authorized to file the appeal on behalf of department against the order in original is the “Assistant Commissioner”. On the other hand, these directions have not been followed and the appeal has been filed by the Superintendent who was not authorized by the reviewing committee. Also, there is no signature of Superintendent on the appeal memo. Therefore, the appeal filed by the Superintendent without authorization is wholly and totally erroneous in view of following recent decision given by larger bench of Tribunal:-

· CCE & CC Vs M/s Siddharth Petro Products Ltd [2013-TIOL-1061-CESTAT-AHM-LB]

Central Excise - Appeals - Commissioner directed by Board to appeal to the Tribunal - Commissioner authorizes a Superintendent to file the appeal. Appeal signed by Superintendent not valid - Appeal Dismissed. - Appeal Dismissed : AHMEDABAD CESTAT (LARGER BENCH)

In view of above decision, the appeal is to be filed by the person authorized by the review committee. He cannot authorize any other person to file the appeal in this regard. In the instant case, the order was reviewed by the Commissioner who authorized Assistant Commissioner to file the appeal. But actually, the appeal has been filed by the Superintendent (that too without signature). This is not permissible and the impugned appeal filed by the Superintendent without authorization, is devoid of merits and liable to be quashed.

Reasoning of Judgment:-After carefully going through the records of the case and the appeal dated 22.07.2013 appeal filed by the appellant and cross-objections dated 10.09.2013 made by the respondent on the subject appeal, it was found that the SCN was issued to the respondent on the ground that during scrutiny of ER-1 it was noticed that Cenvat Credit were taken by them and same were shown in ER-1 for the period September-2011.

It was found that the respondent has mainly contended and has emphasized on' the procedural discrepancies’ that has taken place during the process of filing of appeal of the instant appeal by the appellant. The Commissioner Appeals agreed to the contention of the respondent in terms of the lapse on the part of the appellant as callous attitude on their part. However, the appeal received by this office does not find authentication of the appellant in form EA-2 but at the same time it was found that the Review Order dated 12.06.2013 has been signed by the Commissioner which is self contained and explanatory and which authorizes the Assistant Commissioner, Central Excise, Div.IV A'bad-I to file the appeal against the impugned order. It was also found that the appeal letter dated 18.07.2013 has been signed by the Assistant Commissioner, Central Excise, Div.IV A'bad-I by which the said appeal dated 22.07.2013 has been filed with this office. Looking to the merits of the appeal vis-à-vis the discrepancies pointed above, it was found that the appeal needs to be allowed and admitted in as much as the above procedural lapses would not vitiate the proceedings hereinafter. Hence the appeal was proceeded on merits.

The respondent in their cross objection has submitted that the cenvat credit taken by them in ER-1 for the month of September, 2011 was not of input/input service credit taken on exempted unbranded goods but the same is credit of the dutiable goods received back for remaking, reconditioning etc. in term of provisions of Rule 16 of Central Excise Rules 2002.

Further till June-2011, they were availing Cenvat Credit on inputs used in both dutiable & exempted product for which they had reversed the 5% of value of exempted goods as well the entire credit in the month of June, 2011. After June-2011 they have opted not to avail Cenvat Credit on common input/input services under provision of Cenvat Credit Rules, 2004. The credit shown by then in column 5 details of Cenvat Credit taken in ER-1 is not credit taken on input but actually credit taken on the returned goods under Rule 16 of the Central Excise Rules 2002 which is admissible as they have reversed the cenvat credit lying as on balance and have opted for availing of exemption under Notification No.30/2004-CE. There is no other procedure available to the respondent as they had paid duty on the branded goods, without availing any input credit and once the goods are returned they were not suppose to pay duty twice but to take credit of the duty already paid. The said credit is not a credit on 'input or input service" which is not allowed in terms of Rule 6(1) of CCR Rules, 2004 but a deeming fiction under Rule 16(1) of the CER, 2002 as the words used are “as if such goods are received as inputs under the Cenvat Credit Rules”. Therefore this credit is merely a procedural facility provided to the respondent to avoid double payment of duty on the same goods.

In view of the above findings, the Commissioner Appeals uphold the order in original and rejected the appeal filed by the revenue.

Decision:-Appeal filed by the revenue was rejected.

Conclusion:-The substance of this case is that the provisions of Rule 6 for maintenance of separate inventory of inputs and reversal of credit are applicable only when credit is proposed to be availed on common inputs and input services that are used in the manufacture of both dutiable and exempted goods or provision of taxable and exempted output service. However, as in the present case, the credit that was being availed solely pertained to the branded readymade garments that were cleared on payment of duty, the contention of reversal under Rule 6 was totally erroneous. Moreover, the credit taken was that in respect of branded goods received for repair under Rule 16 that was ultimately reversed on clearance of repaired goods and so it tantamounted to non-taking of credit. Hence, the demand for reversal of 5% of the value of exempted goods was not sustainable as the credit did not pertain to common inputs used in manufacture of exempted unbranded goods but rather the same was specifically attributable to the branded goods.

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PJ/Case Study/2013-14/77
16 November 2013

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PJ/Case Study/2013-14/77 16 November 2013

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PJ/Case Study/2013-14/77
16 November 2013