Customs, Excise and Gold Tribunal - Tamil Nadu
Pepsico India Holdings Pvt. Ltd. vs Commissioner Of Central Excise on 30 April, 2007
Equivalent citations: 2007(119)ECC283, 2007ECR283(TRI.-CHENNAI)
ORDER P. Karthikeyan, Member (T)
1. These are two appeals filed by M/s. Pepsico India Holdings Private Limited, Mamandur (hereafter, also referred to as PIHPL, assessee or appellants). As the two appeals basically deal with the same dispute, for different periods, we take up first the appeal No. E/43/06/MAS for examination. PIHPL are engaged in the manufacture of aerated waters falling under Chapter Sub Heading 2202.02 of the Schedule to the Central Excise Tariff Act, 1985. They also manufacture "Slice", a fruit pulp based softdrink, falling under CSH 2202.40 which is fully exempted from payment of duty vide Notification No. 6/2001-CE since 1.3.01. The assessee avails cenvat credit on input 'plastic crates' used for packing and distribution of their final products. A Show Cause Notice was issued to the assessee to recover 8% of the sale price of 'Slice' cleared during the period 1.11.03 to 30.09.04 in terms of Rule 6(3) (b) of Cenvat Credit Rules, 2002 (CCR' 02 for short) as the assessee had used the input plastic crates in the manufacture of both dutiable and exempted goods and did not maintain separate accounts of such inputs for such use, as prescribed. In conclusion of the proceedings, the Commissioner demanded an amount of Rs. 1,25,69,549/- from PIHPL under Rule 12 of Cenvat Credit Rules 2002 read with Section 11A of the Central Excise Act 1944 (the Act) along with appropriate interest. He also imposed a penalty of Rs. 12 lakhs on the assessee under Rule 13 of the CCR 2002.
2. The proposals in the notice were confirmed and decided against the assessee for the reason that the assessee had not maintained separate accounts of receipt, consumption and inventory of plastic crates used for packing 'Slice' and aerated drinks cleared during the material period. The Commissioner did not dispute the claim made by the assessee that they had not used new plastic crates for packing 'Slice'. He did not find the plea of the assessee that the 'inputs' envisaged in the Cenvat Credit Rules '02 were only those received in the factory under cover of duty paying documents and yielded cenvat credit and not those that had already been put to use in packing their products. According to him, the plastic crates continued to be inputs for the purpose of CCR '02 till they were damaged/destroyed and had become unserviceable. The Commissioner held the view that using old crates as inputs in or in relation to the manufacture of the final product was use of input as contemplated in the Rules. The appellants had claimed that they had not taken credit of duty paid on 22% of the total quantity of plastic crates received by them. 'Slice' had formed 22% of the appellant's total production of soft drinks packed and cleared in crates. The Commissioner does not deny this claim in the impugned order. The Commissioner has not disputed that the appellants had maintained separate accounts for receipt, consumption and inventory of new crates meant for use in the manufacture of dutiable final product and exempted final product. However, in the view he had taken of 'inputs' he did not consider it sufficient compliance with Rule 6(2) of the CCR '02. In line with this view, the repeated use of old crates in packing of 'Slice' bottles without maintaining separate accounts all through was held to be not in compliance with the procedure prescribed in Rule 6(2) of Cenvat Credit Rules, 2002. Thus the Commissioner found that the appellants had failed to maintain separate accounts of receipt, consumption and inventory of plastic crates used for packing dutiable aerated drinks and exempted 'Slice'. Hence the order of demand for Rs. 1,25,00,000/-, interest thereon and penalty of Rs. 12,00,000/- on PIHPL.
3. In the appeal before us, the assessee has canvassed the same plea centred on the scope of 'inputs' figuring in the Cenvat Credit Rules, 2002. They have submitted that since 'Slice' was exempted on 01.03.01, they had been maintaining separate accounts as required under Cenvat Credit Rule 6(2). They maintained such accounts as regards new plastic crates. The Commissioner's order demanding duty, in terms of Rule 6(3)(b) was due to his failure to appreciate the position that used crates could not be considered as 'Cenvatable inputs'. According to them, once the crates were used for removing their final products, those crates ceased to be inputs on which credit could be availed. They argued that records were required to be maintained in relation to receipt, consumption and inventory of only common inputs on which cenvat credit was available and which were meant for use in the manufacture of dutiable goods and exempted goods. Once the new crates had entered the manufacturing stream and the crates had been used once, the provisions of Rule 6 ceased to operate as regards those inputs. Therefore, provisions Rule 6(3)(b) of Cenvat Credit Rules, 2002 did not apply as regards used crates and hence the impugned order was not sustainable.
4. In the appeal, the appellants have submitted that when 'Slice' was exempted from payment of duty with effect from 01.03.2001, they had filed a declaration with the department informing that they were maintaining separate accounts for common inputs used in the manufacture of 'Slice'. They had also intimated the department vide their letter dated 24.08.2001, that they used only old crates for packing 'Slice'. The appellants had also informed the Range Superintendent that they had not taken cenvat credit on 22% of new crates purchased in the year 2000. In reply to the Show Cause Notice, the appellants had submitted that during the material period new crates had been received only during January, 2004 to April, 2004 and during that period they had received/issued only 66915 new crates in relation to which the credit was taken. Therefore if at all any demand had to be made, the same had to be confined to this quantity. A chartered accountant's certificate dated 29.01.07 certifying that new crates received during November 2003 to October 2004 were used by the assessee for clearing only duty paid goods is on record. The appellants had not availed Cenvat credit on 22% of the total quantity of plastic crates received by them as only 22% of the total final products packed in crates were exempted 'Slice'. Moreover, as regards these new crates, they had been maintaining separate account as required under Rule 6(2) of the Cenvat Credit Rules, 2002. It is argued that the demand was not sustainable and deserved to be set aside.
5. The learned Counsel cited several case law which had held that an exemption benefit subject to non-availment of credit was not deniable if the credit initially availed was subsequently reversed. Learned JCDR countered the plea on the ground that all the decisions cited related to benefit of a Notification whereas the dispute under discussion related to interpretation of statutory provisions. We have dealt with these arguments in more detail while considering the appeal No. E/771/06.
6. We have considered the submissions and studied the case records. There is no dispute that 22% of assessee's total production is 'Slice' and that the assessee refrained from taking credit of duty paid on 22% of plastic crates received in the factory. The counsel for PIHPL showed us records in support of the claim that they had maintained separate account of receipt, issue and inventory of the new crates.
7. As per Rule 2(g) of CCR 2002, inputs mean all goods including packing material, used in, or in relation to, the manufacture of final product. As per Rule 3 of CCR 2002, a manufacturer of final product is allowed to take credit of specified duties paid on inputs or capital goods received in the factory for use in the manufacture of final product. As per Rule 7 of the CCR 2002 cenvat credit can be taken by the manufacturer on the basis of prescribed documents such as an invoice issued by a manufacturer for clearance of inputs, a bill of entry issued by an importer etc. Once the inputs have been put to its intended use, no further credit could be availed on such goods. The requirement of maintaining separate account ceases once the inputs have been accounted as issued for consumption. We find considerable force in the argument of the appellants that used plastic crates are not subject to the rules regulating the use of common inputs. It is not the case of the department that appellants have used new crates for clearing exempted final products. Therefore, they have not violated the provisions of Rule 6(3)(b) of the Cenvat Credit Rules 2002 to attract the liability applicable to common inputs used in exempted and dutiable final products. Therefore, the demand made on the appellants on the premise that they are required to maintain separate accounts as regards the entire plastic crates in use by the appellants is incorrect. Rule 6 of CCR '02 reads as under:
6. Obligation of manufacturer of dutiable and exempted goods.
(1) The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in Sub-rule (2).
(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of exempted dutiable final products and the quantity of inputs meant for manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods.
(3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:
(a) if the exempted goods are:
(i) goods falling within heading No. 22.04 of the first Schedule to the Tariff Act;
(ii) Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;
(iii) Naptha (RN) falling within Chapter 27 of the said First schedule used in the manufacture of fertilizer;
(iv) Tyres of any kind used on animal drawn vehicles or hand crafts and their tubes, falling within Chapter 40 of the First Schedule;
(v) Newsprint, in rolls or sheets, falling within heading No. 48.01 of the First Schedule;
(vi) Final products falling within Chapters 50 to 63 of the First Schedule the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in or, in relation to, the manufacture of such final products at the time of their clearance from the factory; or
(b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to eight per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
Explanation I - The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer by debiting the CENVAT Credit or otherwise.
Explanation II - If the manufacturer fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in Rule 12, for recovery of CENVAT credit wrongly taken.
In the present case, the goods involved are other than those specified under sub para 3 (a) of Rule 6.
8. We find that the impugned order is on the sole ground that the appellants had not followed Rule 6(2) of the CCR 2002 and had not maintained separate accounts of receipt, consumption and inventory of used crates deployed for packing dutiable and exempted final products manufactured and cleared by the appellants. There is no dispute that the appellants had not taken credit of duty paid on 22% of the crates which is the percentage of 'Slice' out of the assessee's total production. It is also not in dispute that the appellants had not used new crates for packing 'Slice' in the material period. Since the appellants used inputs in the manufacture of exempted and dutiable final products, unless they had followed the provisions of Rule 6 of CCR 2002, they were required to pay 8% (10% from 10.9.2004) of the sale price of the exempted final product (slice) cleared during the material period. The appellants have argued that when the used crates received back in the factory from distributors of the products of the appellants, they are not covered by any duty paying documents and are therefore, not inputs in terms of Rule 2(g) of CCR 2002. The provisions of Rule 6(2) and 6(3) of CCR 2002 applied only to inputs received under cover of prescribed duty paying documents and on which the manufacturer of final products could avail cenvat credit. Therefore, used crates though continued to serve the purpose of input in the manufacture of final product, they were not inputs for the purpose of Rule 6 of CCR 2002. The inputs envisaged in Rule 6 of the CCR 2002 are new crates in the instant case. The appellants have argued that they had fulfilled the requirement of Rule 6(2) of CCR 2002 as regards the new crates received by them and therefore, no liability could be fastened on them on the ground that they did not maintain accounts of all the crates in use by the appellants. We find considerable force in the above arguments of the assessee. It is not disputed that the appellants kept account of receipt, issue and inventory of new crates. In our view, a manufacturer availing Cenvat scheme and manufacturing dutiable and exempted goods need not maintain account of issue of the inputs which find repeated use in the manufacture of final products once their consumption when new is accounted. Rule 6 of the said Rules envisages maintenance of account of virgin inputs yet to enter the manufacturing stream. Non maintenance of accounts as regards use of credit availed inputs which have already been used once in the packing of final products does not invite the liability of 8% (later 10%) of the sale price of exempted final products as provided in Rule 6 of the CCR ibid. Therefore, the impugned order is not in accordance with law and we allow this appeal.
9. Appeal No. E/771/06. This appeal is filed against Order-in-Original No. 6/2006 dated 2.6.2006 relating to the period 1.10.2004 to 30.9.2005 in which an amount of Rs 2,00,68,669/-was demanded from the assessee under Rule 14 of CCR 2004 read with Section 11A of the Act and a penalty of Rs. 20 lakhs was imposed on it. Facts of this case are similar to the case discussed above, except that in this period assessee had failed to maintain accounts as required under Rule 6(2) of CCR '04 in respect of the common input Furnace Oil (FO). Same arguments as advanced in the previous appeal have been advanced by both sides in this appeal as regards packing material; ie, crates. Additionally, the learned JCDR has submitted that the amount demanded is sustainable for the reason that no separate accounts were maintained as required under Rule 6(2) in respect also of FO from 16.5.2005. Furnace Oil (FO) was not covered by Rule 6 (2) of CCR 2004 till issue of Notification No. 27/2005 CE (NT) dated 16.5.2005. The Notification amended Rule 6(2) of CCR 2004 by bringing inputs used as fuel also under the coverage of Rule 6 (2) of CCR 2004. The appellants had reversed an amount of Rs 4,97,596/- being the cenvat credit availed on furnace oil from 16/5/2005 in 9/2005. The amount demanded was computed as 10% of the sale price of the exempted 'Slice' cleared by the assessee from 1.10.2004 to 30.9.2005.
10. The assessee has not maintained separate accounts as regards receipt, consumption and stock of the common input FO used in the manufacture of dutiable and exempted final products manufactured and cleared by the assessee during the material period. Therefore, the impugned clearances attract the provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2004. We note that in addition to the inclusion of fuels like FO under inputs in Rule 6 (2), the amount to be paid in terms of Rule 6(3)(b) of CCR 2004 has been enhanced to 10% from the erstwhile 8% of the sale price of the exempted goods from 10.0.2005.
11. We note that by the time the subject show cause notice was issued, the relevant sub-rule of Rule 6(2) of CCR 2004 was modified as follows:
Where a manufacturer or (2) provider of output service avails of CENVAT credit in respect of any inputs or *], and manufactures such final products or provides such * input services, [* 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 service meant for use in the manufacture of dutiable final products or in providing output service 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 service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
12. Learned Counsel for the appellants invited our attention to the judgment of the Hon'ble High Court of Allahabad in the case of Hello Minerals Water (P) Ltd. v. UOI wherein the High Court had held that subsequent reversal of Modvat Credit amounted to non-taking of credit on inputs and that benefit of exemption Notification 15/94 CE could not be denied. It was also held therein that reversal of Modvat Credit could be made even subsequent to the clearance of the final product. He also referred to the Tribunal's decision in the case of Sagar Twisters v. CCE, Mumbai wherein it was held that, when credit was not utilized, the same could not be said to have been availed and appellants therein were disentitled to the benefit of Notification No. 4/97-CE. It was a condition of the Notification that no credit was availed under Rule 57A or 57Q. He also submitted that similar view was taken by the Tribunal in the case of CCE, Mumbai-I v. Bombay Dyeing & Mfg Co. Ltd 2006 (203) ELT 290 (Tri.Mumbai). The order had dealt with a similar Notification No. 14/2002 which prescribed that the benefit therein was available subject to the manufacturer of woven fabrics not availing modvat credit on inputs or capital goods. Similar ratio has been laid down by the Tribunal in the case of Precot Mills Ltd v. CCE, Tirupati 2006 (201) ELT 356 (Tri.Chennai). The appellants also invited our attention to Circular No. 591/28/2001 CX dated 16.10.2001 issued by the Board wherein it was clarified that in cases where common inputs are used in the manufacture of exempted and dutiable final products, and the assessee does not maintain separate accounts as prescribed or does not pay 8% of the price of the exempted goods, credit taken on inputs that had gone into the manufacture of exempted final products may be recovered. Their contention was that their case was covered by the said Circular issued by the Board.
13. The learned JCDR, on the other hand relied on the judgment of the Hon'ble Supreme Court in the case of Amrit Paper v. CCE, Ludhiana 2006 -TIOL-85-SC-CX wherein it was held as under:
57C. Credit of duty not to be allowed if final products are exempt.-
No credit of the specified duty paid on the inputs used in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred per cent Export-Oriented Unit) shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.
It provides in mandatory and categorical terms that no credit of the specified duty paid on the inputs used in the manufacture of a final product (of the enumerated categories) shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. Moreover on the facts of the case it is found that the manufacturer had availed of the credit at the time of the clearance of the goods and had suo moto reversed it to avail the exemption later on almost after 11 months when it claimed refund of modvat-credit, hence it was not entitled to exemption. Undisputedly factual position is so.
Moreover, on the facts of the case, it is found that the manufacturer had availed of the credit at the time of the clearance of the goods and had suo motu reversed it to avail the exemption later on almost after 15 months when it claimed refund of Modvat credit, hence it was not entitled to exemption. Though the decision in Orissa Extrusions's case (supra) supports the stand taken by the appellant, but in view of what has been stated by a three-Judge Bench in Ichalkaranji's case (supra) the decision does not lay down the correct position in law. In that view of the matter, the present appeal is sans merit and is dismissed. No costs.
He also referred to the judgment of the Hon'ble Apex court in the case of Ichalkaranji Machine Centre Pvt Ltd. v. CCE, Pune . He further submitted that the case law cited by the learned Counsel for the appellants are not relevant to the dispute as they had dealt with admissibility of benefit of certain exemption Notifications in the event of the assessee reversing the modvat credit already taken.
14. We find that all the judicial authorities cited by both sides dealt with the admissibility or otherwise of benefit of an exemption Notification subject to the assessee not taking modvat/cenvat credit which condition was initially not complied with and credit reversed subsequently. The decisions cited do not deal with the issue on hand and are therefore, not relevant. As regards the Board's Circular cited by the learned Counsel, we find that by Circular No. 654/45/2002 CX dated 19.8.2002 the Board clarified that an assessee who has not maintained separate inventory and has taken credit on common inputs to manufacture dutiable and exempted products, (except in the cases mentioned in Sub-rule 3(a) of Rule 6) has no option but to reverse 8% of the price of the exempted goods as per provisions of Rule 6(3)(b) ibid.
15. In the instant case, the assessee has not maintained separate accounts for common input FO used in the manufacture of both dutiable and exempted final products. Therefore, in terms of Rule 6(3)(b) of CCR 2004, PIHPL are liable to pay 10% of the sale price of 'Slice' cleared during the material period. We, therefore, find the impugned order to be in accordance with law and uphold the same. However, we find the penalty of Rs. 20,00,000/- imposed on the assessee is a little too harsh and we think that interests of justice would be met if the same is reduced to Rs. 1,00,000/-(Rupees one lakh) and we order accordingly. In the result appeal No. E/43/06 is allowed and Appeal No. E/771/06 is dismissed except for the reduction in the quantum of penalty.
(Order pronounced in open Court on 30.4.2007)