Custom, Excise & Service Tax Tribunal
M/S.Shree Baba Exports vs Cce, Meerut-Ii on 10 November, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing:23.07.2014
Date of decision:10/11/2014
Excise Appeal No.E/4032 of 2010-EX(DB) &
Excise Appeal No.E/3944 of 2010-EX(DB)
[Arising out of Order-in-Appeal No.294/CE/MRT-II/2010 dated 30.08.2010 passed by the Commissioner of Customs & Central Excise (Appeals), Meerut-II].
M/s.Shree Baba Exports Appellant
Vs.
CCE, Meerut-II Respondent
For approval and signature:
Honble Smt. Archana Wadhwa, Member (Judicial)
Honble Shri Rakesh Kumar, Member (Technical)
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1. Whether Press Reporters may be allowed to see CESTAT (Procedure) Rules, 1982.
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy of the Order?
4. Whether Order is to be circulated to the Departmental authorities?
Appearance: Rep. by Shri S.K. Mathur, Advocate for the appellant.
Rep. by Ms. Sweta Bector, DR for the respondent.
CORAM: Honble Smt. Archana Wadhwa, Member (Judicial) Honble Shri Rakesh Kumar, Member (Technical) Final Orders Nos.54234-54235/2014 /Dated:10.11.2014 Per Rakesh Kumar The facts leading to filing of this appeal are, in brief, as under:-
1.1 M/s. Shree Baba Exports (hereinafter referred to as the appellant) are engaged in the manufacture of Menthol flakes classifiable under sub-heading no.29061110, Menthol Crystals B.P/USP classifiable under sub-heading no.30039021 and De-Mentholised Oil and essential oils derived from Dementholized classifiable under sub-heading no.33012590 of the Tariff. These final products are manufactured from duty paid Crude Menthol in respect of which, cenvat credit was being taken. W.e.f. 1.3.2008, by exemption notification no.4/08-CE dated 1.3.2008,Menthol and Menthol Crystals became fully and unconditionally exempt from duty. In accordance with the provisions of Rule 6(1) of Cenvat Credit Rules, 2004, Cenvat Credit Rules shall not be available on such quantity of inputs which are used in the manufacture of exempted goods, except in the circumstances mentioned in Rule 6(2) ibid. In accordance with the provisions of Rule 6(2) of the Cenvat Credit Rules, 2004, when a manufacturer of excisable goods has used cenvat credit availed inputs or input services in or in relation to the manufacture of dutiable excisable goods as well as exempted excisable goods, he shall either maintain separate account and inventory of the inputs/input services used in or in relation to the manufacture of dutiable and exempted final products and take cenvat credit only in respect of the inputs/input services used in or in relation to the manufacture of dutiable final products or if he does not do so, he shall be required to pay an amount in respect of the clearances of exempted final products as per the provisions of Rule 6(3), which is either an amount equal to 5% /10% of the sale value of the exempted final products or an amount equal to the cenvat credit involved in respect of the inputs/input services used in or in relation to the manufacture of the exempted final product. Further, as per the provisions of Rule 11(3)(ii) of Cenvat Credit Rules, when a manufacturer is using cenvat credit of excise duty paid on the inputs used in or in relation to the manufacture of some final product and that final product has become exempted absolutely in terms of some exemption notification issued under Section 5 A of the Central Excise Act, 1944,he shall be required to pay an amount equivalent to the cenvat credit, if any, taken by him in respect of the inputs received by him for manufacture of the said final product which are lying in stock or are in process or are contained in the final products lying in stock on the date of exemption and after deducting the said amount from the balance cenvat credit, if any, the balance amount of cenvat credit, if any still remaining, shall lapse and shall not be allowed to be utilized for payment of duty on any final products, whether cleared for home consumption or for export.
1.2 In this case, when out of the various final products being manufactured, Menthol Crystals (falling under sub-heading no.30039021 and Menthol Flakes classifiable under sub-heading no.29061100 become fully exempted from duty w.e.f. 1.3.2008, the department was of the view that the appellant would be required to pay an amount equal to the cenvat credit involved on the inputs lying in stock or in process or contained in the final product lying in stock as on 1.3.2008 and after debiting this much amount from the cenvat credit balance, if any, as on 1.3.2008, the remaining balance of cenvat credit shall lapse. Since in this case, the appellant did not reverse the cenvat credit of Rs.20,59,814/- , which was the cenvat credit in respect of the inputs in process as on 1.3.2008 and also the inputs contained in the final products as on 1.3.2008 lying in stock as on 1.3.2008, the department was of the view that that this cenvat credit which was not reversed and on the contrary, was utilized by them for payment of duty on the dutiable final products, would be recoverable from them. On this basis, a show cause notice dated 30.03.2009 was issued to the appellant for recovery of the above amount of cenvat credit along with interest thereon under Section 11 AB of the Central Excise Act and for imposition of penalty on them under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act,1944.
1.3 The above show cause notice was adjudicated by the Addl. Commissioner vide order-in-original no.45/ADDL.COMMR/M-II/2010 dated 30.03.2010 by which the Addl. Commissioner confirmed the above mentioned cenvat credit demand along with interest and imposed penalty of equal amount on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944. In course of proceedings before the Addl. Commissioner , the appellants plea that Rule 11 (3) was not applicable to their case, as along with Menthol flakes and Menthol Crystal, which had become absolutely exempt from duty w.e.f. 1.3.2008, the appellant were also manufacturing DMO and various essential oils derived from DMO, which were dutiable, but this plea was not accepted.
1.4 On appeal being filed to the Commissioner (Appeals) against this order, the Commissioner (Appeals) vide order-in-appeal dated 30.08.2010 upheld the cenvat credit demand along with interest but set aside the penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944 holding that penalty is not sustainable.
1.5 Against the above order of the Commissioner (Appeals), while the appellant have filed the appeal no.E/4032/2010-EX(DB) challenging the confirmation of the cenvat credit demand, Revenue has filed appeal against part of the Commissioner (Appeals)s order setting aside the order of penalty.
2. Heard both the sides.
3. Shri S.K. Mathur, Advocate, ld. Counsel for the appellant, pleaded that since the appellant out of the same cenvat credit availed input crude menthol, manufactured dutiable final products as well as exempted final products, the provisions of Rule 11(3) of the Cenvat Credit Rules, 2004 would not be applicable, as Rule 11(3) applies only in those cases where cenvat credit availed inputs have been used in the manufacture of a final product, which has become fully exempted from duty, that the cenvat credit taken in respect of the inputs has been utilized for payment of duty on De-mentholised Oil (DMO) and essential oils derived from DMO like peppermint oil, Menthone, etc., that the finished goods manufactured have been exported out of India and, therefore, the provisions of sub-rule (1), (2) and (3) of Rule-6 would not be applicable, that notwithstanding the fact that the Menthol Crystals and Menthol flakes were fully exempt from duty w.e.f. 1.3.2008, since these products along with the other by-products obtained from DMO had been exported out of India, the appellant would not be required to reverse the credit and that in this regard, he relies upon the judgements of the Honble Bombay High Court in the cases of Repro India Ltd. Vs. Union of India reported in 2009 (235) ELT 641 (Bombay) and Union of India Vs. Sharp Menthol India Ltd. reported in 2011 (270) ELT 212 (Bombay), of Honble Delhi High Court in the case of CCE Vs.Punjab Stainless Steel Ltd. reported in 2009 (234) ELT 605 and of the Honble Himachal Pradesh High Court in the case of CCE Vs. Drish Shoes reported in 2010 (254) ELT 117 (H.P.). He, therefore, pleaded that since the cenvat credit demand itself is not sustainable, there is no question of imposition of penalty and, therefore, Revenues appeal is without any merit.
4. Ms. Sweta Bector, ld. Departmental Representative, while defending the impugned order upholding the cenvat credit demand pleaded that since the main final products- Menthol flakes and Menthol Crystals obtained from duty paid Menthol had become fully and unconditionally exempt from duty w.e.f. 1.3.2008, the provisions of Section 11 (3) of Cenvat Credit Rules, 2004 would become applicable, as the appellant were availing input duty credit in respect of the inputs Crude Menthol used in the manufacture of Menthol flakes and Menthol Crystals, that since the DMO and fractions of DMO are only a by-product and the main products are Menthol and Menthol Crystal, the provisions of Rule 11(3) had become applicable w.e.f. 1.3.2008 when the main product had become fully exempt notwithstanding the fact that the by-products DMO/DMO fractions remained dutiable, that the word excisable in Rule 6(6) of the Cenvat Credit Rules, 2004 has to be interpreted as dutiable and since the main final products were no longer dutiable w.e.f. 1.3.2008, the provisions of Section 11(3) of the Rules would become applicable, that no evidence has been produced by the appellant in support of their plea that during the period of dispute, their finished products were being exported out of India and that in view of this, there is no infirmity in the impugned order upholding the cenvat credit demand. With regard to the Revenues appeal, she pleaded that since the confirmation of cenvat credit demand has been upheld, penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11 AC of the Central Excise Act would be attracted and there is absolutely no justification for setting aside this penalty, as the appellant had suppressed the relevant information from the department.
5. We have considered the submissions from both the sides and perused the records.
6. The appellant received the duty paid Crude Menthol and processed the same in their factory. Their main final products are Menthol flakes and Menthol Crystals. Besides this, a by-product DMO oil also emerges which is further processed to obtain Terpine, Menthone, Peppermint oil, etc. During the period prior to 1.3.2008, the appellant were availing cenvat credit of the duty paid on crude menthol and other inputs and were utilizing the credit towards payment of duty on their final products Menthol Flakes, Menthol Crystals, DMO and its fractions. With effect from 1.3.2008, Methol Flakes and Menthol Crystals became fully exempt from duty but the DMO and its fractions remained dutiable. The department is of the view that in this situation, the provisions of Rule 11(3) (ii) of the Cenvat Credit Rules, 2004 would become applicable and in accordance with this sub-rule, the appellant would be required to pay an amount equal to the cenvat credit involved on the input in process (Menthol) and the input contained in the final products Menthol Crystals lying in stock as on 1.3.2008 and since the appellant have not paid this amount, the cenvat credit demand for an amount of Rs.20,59,814/- has been upheld. The contention of the appellant is that Rule 11(3)(ii) is applicable only when one or more than one cenvat credit availed inputs have been used in or in relation to the manufacture of only one final product, which has become fully exempt from duty and that since in this case, the same cenvat credit availed inputs have been used for manufacture of more than one final product, out of which only two final products - Menthol flakes and Menthol Crystals have become fully exempted from duty and the other final product DMO and its fractions have remained dutiable, the provisions of this sub-rule would not be applicable.
7. Sub-rule (3) of Rule 11 of the Cenvat Credit Rules, which has been introduced w.e.f. 1.3.2008 is reproduced below:-
Sub-rule (3) of Rule 11:
[(3) manufacturer or producer of a final product shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if, -
(i) he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under section 5A of the Act; or
(ii) the said final product has been exempted absolutely under section 5A of the Act, and after deducting the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported. 7.1 From a perusal of this sub-rule, it is clear that this sub-rule would be applicable if the some cenvat credit availed inputs are being used for manufacture of a final product and that final product has become fully exempt from duty. In such a situation, the assessee would be liable to pay an amount equal to the cenvat credit involved in respect of the inputs lying in stock or in process, or contained in the final products lying in stock on the date of exemption, and after deducting this amount from the cenvat credit balance, if any, as on the date of exemption, if any cenvat credit balance still remains, it shall lapse and the same shall not be allowed to be utilized for payment of duty on any goods whether cleared for home consumption or for export. In our view, this sub-rule would not apply when out of common cenvat credit availed inputs, more than one final products are manufactured and while some final products have become exempt, others have remained dutiable. Since in terms of sub-rule (4) of Rule 3 of the Rules, the cenvat credit may be utilized for payment of any duty of excise on any final product, if out of the same cenvat credit availed inputs, more than one final product are manufactured and out of those final products, one final product has become fully exempt from duty, the cenvat credit can be utilized for payment of duty on the other final products, which are dutiable and as such, the manufacturers right to utilize the cenvat credit for payment of duty on the final products which are still dutiable cannot be taken away just because out of several final products, one final product has become exempt from duty. We, therefore, hold that the Revenues interpretation of Rule 11(3) is not correct.
8. The Department, however, has also invoked Rule 6 of the Cenvat Credit Rules. Though the cenvat credit has been calculated in terms of the provisions of Rule 11(3)(ii),in terms of the provisions of sub-rule (1) of Rule 6, no cenvat credit shall be admissible, in respect of the quantity of the inputs used in or in relation to the manufacture of final product, which is fully exempt from duty. In terms of the sub-rule (2) of Rule 6 when a manufacturer uses the same cenvat credit availed inputs in or in relation to the manufacture of dutiable as well as exempted final products, he shall either maintain separate account for dutiable final and exempted final products and avail cevant credit only in respect of the inputs /input services used in or in relation to the manufacture of dutiable final products and if he does not maintain such account, he is required to pay an amount as per the provisions of sub-rule (3) of Rule 6. Sub-rule (3) gives an option either to pay an amount equal to 5% /10% of the sale value of the exempted final products at the time of their clearance or pay an amount equal to the proportionate cenvat credit in respect of the inputs used in the manufacture of exempted final products to be calculated as per the formula prescribed in this sub-rule. The appellants contention is that the provisions of sub-rule (1), (2) and (3) would not be applicable, as the finished products including the exempted final products have been exported out of India under bond, and hence, they will be covered by exceptions mentioned in the sub-rule(6) of Rule 6 and in this regard, they rely upon the judgements of Honble Bombay High Court in the case of Sharp Menthol India (supra) and Repro India (supra), judgement of the Honble Delhi High Court in the case of Punjub Stainless Steel (supra) and judgement of the Honble Himachal Pradesh High Court in the case of Drish Shoes (supra), wherein it has been held that the word excisable goods in sub-rule (6) of Rule 6 would include the excisable goods which are fully exempt from duty and accordingly, if the fully and unconditionally exempt excisable goods are exported out of India under bond/LUT, the provisions of sub-rule (1), (2)and (3) would not be applicable and the cenvat credit would not be liable to be reversed. In view of the above judgements of High Courts, we hold that when the final products, even if fully and unconditionally exempt from duty, have been exported out of India under bond/letter of undertaking, the provisions of Rule 6(1), 6(2) and 6(3) would not be applicable. But if the appellant were clearing their final products for home consumption, in accordance with the provisions of Rule 6(1), cenvat credit would not be admissible to the extent the cenvated inputs have been used in or in relation to the manufacture of exempted final products.
9. In view of the above discussion, we hold that that while the provisions of sub-rule (3)(ii) of Rule 11 of the Cenvat Credit Rules, 2004 are not applicable, the provisions of sub-rule (1) of Rule 6 of the Cenvat Credit Rules, 2004, would be applicable , if during the period of dispute, the appellant were clearing their finished products for home consumption. However, the provisions of either sub-rule (1) or of sub-rule (2) read with sub-rule (3) of Rule 6 would not be applicable, if the appellant were exporting their finished products out of India under bond or under Letter of Undertaking. However, the Appellant have not produced any evidence in support of their plea that during the period of dispute, the finished products were being exported under bond/LUT. The impugned order is, therefore, set aside and the matter is remanded to the original adjudicating authority for de novo adjudication after ascertaining as to whether during the period of dispute, the appellant were exporting their final products and keeping in view our observations in this order.
[Order pronounced on 10.11.2014].
( Archana Wadhwa ) Member (Judicial) (Rakesh Kumar ) Member (Technical) ckp 1