Commissioner of Central Excise, Puducherry Commissionerate vs Customs, Excise and Service Tax Appellate Tribunal and Others

R. Sudhakar, J—Aggrieved by the order of the Tribunal in allowing the appeal filed by the assessee, the appellant/Revenue is before this Court by filing the present appeal. Vide order dated 4.12.2009, this Court, while admitting the appeal, framed the following substantial question of law for consideration :-

"Whether the Tribunal is justified in allowing the appeal when Rule 57CC (1) of Central Excise Rules, 1944 is straight away attracted and when sub-rule (9) is not complied with?"

The facts, in a nutshell, are as hereunder :-

The respondent is a manufacturer of aerated water drinks and fruit juice based drinks and is subjected to ''Nil'' rate of duty under Chapter 22 of the Central Excise Tariff. The respondent took Cenvat credit on various inputs used in the manufacture of aerated water and Lehar Slice, viz., (i) Sugar (to prepare sugar syrup), (ii) activated carbon (for water purification), (iii) caustic soda (for water purification), (iv) filter paper (for filtration), (v) furnace oil (fuel for generation of electricity) and (vi) industrial washing products. The respondent had taken Modvat credit on the common inputs, viz., activated carbon, caustic soda and filter paper with effect from 1.9.1996.

With regard to the common inputs, viz., activated carbon, filter paper and caustic soda, the respondent took cenvat credit only for the month of September, 1996, to the extent of Rs. 33,050/- which was subsequently reversed on 17.10.96 and this fact is not disputed. The respondent did not avail any cenvat credit after September, 1996 on all the aforementioned common inputs.

In respect of furnace oil used for generation of electricity, the following pro rata amounts were paid towards the exempted Lehar Slice :-

The entire modvat credit on the quantity of common inputs stood subsequently reversed.

As regards sugar, which input is common for both dutiable aerated water and exempted Lehar Slice, the respondent maintained separate accounts and took cenvat credit only on that quantity of sugar used in dutiable products, which fact is also not in dispute.

It is the case of the department that the respondent had used the common cenvat credit availed inputs in the manufacture of dutiable aerated water and duty exempted slice, but did not follow the procedure contemplated under Rule 57CC (9) by maintaining separate inventory and accounts in the receipt and use of inputs, viz., filter paper, activated carbon, caustic soda, industrial washing products and sugar. Further, in respect of furnace oil used as fuel, the respondent did not reverse the credit equal to the furnace oil said to have been used in the manufacture of exempted Slice. Therefore, the assessee/respondent is liable to pay an amount equal to 8% of the value of exempted produce under Rule 57CC. Therefore, a show cause notice was issued on the assessee/respondent demanding payment of duty.

A reply was issued by the assessee/respondent to the show cause notice stating that they had reversed the entire credit on the common inputs used in the manufacture of dutiable as well as exempted goods and, therefore, no demand should be made. However, the said submission was rejected by the adjudicating authority, who in his original order of adjudication, confirmed the demand of duty at 8% of the value of clearance. Against the said adjudication order, the assessee preferred appeal before the Commissioner (Appeals), who dismissed the appeal.

On further appeal before the Tribunal, the Tribunal reversed the order of the Commissioner (Appeals) placing reliance on the decision of the Allahabad High Court in Hello Minerals Water (P) Ltd. Vs. Union of India (UOI), (2004) 174 ELT 422 which was passed on the basis of the Apex Court''s decision in Chandrapur Magnet Wires (P) Ltd., Nagpur Vs. Collector of Central Excise, Central Excise Collectorate, Nagpur, (1996) 53 ECC 139 : (1996) 81 ELT 3 : (1995) 9 JT 568 : (1995) 7 SCALE 220 : (1996) 2 SCC 159 : (1995) 6 SCR 593 Supp . Aggrieved against the said order, the appellant/Revenue is before this Court by filing the present appeal.

Heard the learned standing counsel appearing for the appellant/Revenue and the learned counsel appearing for the respondent/assessee and perused the materials available on record as also the decisions relied on by the learned counsel on either side.

When the matter was taken up, it is brought to the notice of this Court that by Finance Act, 2010, an amendment was made to Rule 6 under Section 73 of the Finance Act, 2010, which came into operation with retrospective effect from September, 2004. Sub-rule (6) to Rule 6 was introduced therein, which provided as hereunder :-

Rule 57CC, on which reliance is placed by the learned counsel for the appellant, was introduced with effect from 01.09.1996. As per the said provision, where a manufacturer is engaged in the manufacture of any final product, which is chargeable to duty as well as in any other final product, which is exempt from the whole of the duty of excise leviable thereon, or is chargeable to nil rate of duty and the manufacturer takes credit of the inputs used in the manufacture of both exempted and dutiable final products, the manufacturer shall pay 8% of the price of exempted products unless separate books of accounts are maintained as per sub-rule (9) of Rule 57CC.

It is clear from a plain reading of Rule 57CC that where a manufacturer is engaged in the manufacture of any final product, which is chargeable to duty as well as in any other final product, which is exempt from the whole of the duty of excise leviable thereon, or is chargeable to nil rate of duty, if the manufacturer takes credit of the inputs used in manufacture of both exempted and dutiable final products, in the absence of the manufacturer maintaining separate books of accounts as required under sub-rule (9) of Rule 57CC, the manufacturer is liable to pay 8% of the price of exempted products.

For claiming the benefit under Section 57CC(9) of the Act, the manufacturer has to maintain separate books of accounts, sub-section (2) to Section 73 of the Finance Act, 2010 mandates that the assessee has to make an application to the Commissioner of Central Excise along with documentary evidence and a Certificate from the Chartered Accountant or a Cost Accountant, certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of exempted goods within a period of six months from the date on which the Finance Bill, 2010 received the assent of the President. However, in the present case, even as per the show cause notice and the order of adjudication, it is clear that the input credit has been reversed by the respondent/assessee even prior to the amendment. In such view of the matter, the Tribunal, following the decision of the Allahabad High Court in Hello Mineral Water case (supra), which followed the decision of the Apex Court in Chandrapur Magnet Wires case (supra) rightly set aside the demand.

Similar order has been passed by this Court in the case of Commissioner of Central Excise, Chennai-II Vs. ICMC Corporation Ltd., (2015) 315 ELT 388 , wherein it has been held as hereunder :-

"4. We find from a reading of the amendment made to Rule 6 under Section 73 of the Finance Act, 2010 that the procedure of the Cenvat Credit Rules under Rule 6 was brought in with retrospective effect from September, 2004 by insertion under Rule 6(6), which reads as under :

As per Section 73 sub-section (2) of the Finance Act, 2010 the assessee has to make an application to the Commissioner of Central Excise along with documentary evidence and a Certificate from the Chartered Accountant or a Cost Accountant, certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of exempted goods within a period of six months from the date on which the Finance Bill, 2010 received the assent of the President.

Considering the fact that the assessee had reversed the credit even prior to the amendment and the order of the Tribunal is in fact no different from what is contemplated under the Finance Act, 2010, we do not find anything survives further for this Court to consider the merits of the case pleaded by the Revenue."

In view of the decisions cited supra, the case on hand is squarely covered by the abovesaid decisions. Accordingly, the substantial question of law is answered against the Revenue and in favour of the assessee.

For the reasons stated above, this appeal fails and the same is dismissed. In the circumstances of the case, there shall be no order as to costs.