Commissioner Of Central Excise & S.T., ... vs M/S. Enzal Chemicals (India) Limited

(Arising out of OIA-KS/45/SRT-II/2009 dated 27.03.2009, Passed by Commissioner (Appeals) C. Excise, S.T., & Customs, Surat-II)

Commissioner of Central Excise & S.T., Surat : Appellant (s)

VERSUS

M/s. Enzal Chemicals (India) Limited : Respondent (s)

Represented by :

For Appellant (s) : Shri J. Nair, A.R.

For Respondent (s) : Shri Vinay Kansara, Advocate

For approval and signature :

Mr. P.K. Das, Hon'ble Member (Judicial)

1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

No 2 Whether it should be released under Rule 27 of 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?

Seen 4 Whether Order is to be circulated to the Departmental authorities?

Yes

CORAM :

Mr. P.K. Das, Hon'ble Member (Judicial)

Date of Hearing / Decision : 11.02.2015

ORDER No. A/10132 / 2015 Dated 11.02.2015

Per : Mr. P.K. Das;

The relevant facts of the case, in brief, are that the respondent were engaged in the manufacture of Chemicals classifiable under Chapter 28 and 29 of the First Schedule of Central Excise Tariff Act, 1985. They used common inputs in the manufacture of both, excisable and exempted final products, but the inputs namely Diethyl Carbanyl Chloride were used exclusively in the manufacture of exempted final product. A show cause notice dated 04.10.2006 was issued proposing to deny credit of Rs. 29,26,632/- alongwith interest and penalty on the inputs Diethyl Carbanyl Chloride used exclusively for the manufacture of finished goods i.e. Diethyl Carbamazine Citrate (DECC), during the period from September 2001 to August 2004, as per the provisions of Rule 6 of the Cenvat Credit Rules 2001, 2002/2004. The Adjudicating authority confirmed the demand of Rs. 29,26,632/- alongwith interest and appropriated an amount of Rs. 8 Lakh, as deposited during the investigation. He has also imposed penalty of equal amount of duty. By the impugned order, Commissioner (Appeals) set-aside the adjudication order. The Revenue has filed this appeal.

2. Learned Authorised Representative for the Revenue reiterates the grounds of appeal. He submits that the Commissioner (Appeals) has proceeded on the basis of the decision of the Tribunal in the case of Mahindra & Mahindra vs. CCE, Mumbai  2007 (211) ELT 0481 (Tri. Mum.), wherein the Tribunal allowed the modvat credit on the inputs used in the manufacture of exempted final products, for the period prior to 16.5.2005 (i.e. insertion of Explanation III in the Rule 6 (3) of Cenvat Credit Rules, 2004) and it has been held that explanation would apply prospectively. He submits that the Tribunal, subsequently in the case of Aurobindo Pharma Limited vs. CCE, Vishakhapatnam  2011 (265) ELT 358 (Tri. Bang.) held that the said Explanation III to Rule 6 (3) would be applicable retrospectively. It is submitted that the Tribunal, after considering the various decisions, had come to a conclusion that the Explanation III would be effective retrospectively. He further submits that the Tribunal in the case of Ratnamani Metals & Tubes Limited vs. CCE, Ahmedabad  2012 (285) ELT 274 (Tri. Ahmd.), on the identical issue, held that CENVAT credit is not available on the inputs exclusively used in the manufacture of exempted goods.

3. On the other hand, learned Advocate for the Respondent submits that the Tribunal, in the case of Aurobindo Pharma Limited vs. CCE, Hyderabad  2007 (215) ELT 81 (Tri. Bang.) has categorically observed that Explanation III in Rule 6 (3) of the Cenvat Credit Rules, 2004 would be applicable prospectively and the present case is prior to the insertion of Explanation III. He further submits that the Tribunal has taken a consistent view that the compliance with the Rule 6 (3) relates to the entirety of inputs used in the exempted final products including common inputs used in the manufacture of dutiable and exempted final product. He relied upon the following decisions:-

(a) Aurobindo Pharma Limited vs. CCE, Hyderabad  2007 (215) ELT 81 (Tri. Bang.).

(b) Hetero Labs Limited vs. CCE, Hyderabad  2005 (192) ELT 716 (Tri. Bang.)

(c) Bonfigilioli Transmissions Pvt. Limited vs. CCE, Chennai  2008 (223) ELT 470 (Tri. Chennai).

He further submits that both the authorities below has not considered their submission that the demand is barred by limitation. It is further contended that they had taken a ground before the Commissioner (Appeals) that it is a case of Revenue neutrality, as the raw materials in question would be exempted under Notification No. 3/2001 and Notification No. 6/2002, if used in the manufacture of exempted final products.

4. After hearing both the sides and on perusal of the records, I find that the Commissioner (Appeals) set-aside the adjudication order mainly on the basis of decision of the Tribunal in the case of Mahindra & Mahindra (supra) wherein it has been held that Explanation III to Rule 6 (3) inserted on 16.5.2005 would be effective prospectively. The provisions of the Explanation III of the Rule 6 (3) is reproduced below:-

Explanation III.  For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or exempted services.

5. Subsequently, the Tribunal in the case of Aurobindo Pharma Limited vs. CCE, Vishakhapatnam  2011 (265) ELT 358 (Tri. Bang.), held that Explanation-III to Rule 6 (3) of Cenvat Credit Rules, 2004, clarified is being in the nature of clarification, applicable retrospectively. The relevant portion of the said decision is reproduced below:-

We find that the explanation does not say anything inconsistent with the CENVAT scheme of allowing credit of duty paid on inputs that go into production of goods or services that suffer duty so that there is no cascading effect of goods or services having to suffer double taxation. A position that informed the legislative policy all along is reiterated by expressly denying credit where the final products or services are not subject to tax. We note that the Explanation has been issued for the removal of doubts. The Explanation is in the nature of a clarification and so applies retrospectively. Exceptions to the Rule 3 are specified in sub-rule (6) of Rule 6 of CCR. Therefore an assessee which uses inputs exclusively for the manufacture of exempted goods and services but makes clearances in any manner specified in sub-rule (6) of Rule 6 shall be entitled to credit on exclusive inputs used for the production of exempted final products or provision of exempted services. However, in cases not covered by such exceptions, taking of credit on inputs by such assessees shall be irregular in view of the sub-rule (3) of Rule 6 of CCR. Such credit involved can be recovered along with interest as provided in Rule 14 of CCR. There is no justification to collect 10% of the sale price of exempted goods manufactured using exclusive inputs. There is no legal sanction for such recovery. In the case on hand, sub-rules (1), (2), (3) and (4) shall not be applicable in the case of inputs relatable to excisable goods that are removed without payment of duty either to a hundred percent EOU or cleared for export under bond in terms of provisions of Central Excise Rules, 2002. As regards the credit involved in balance inputs and inputs contained in the finished goods in stock, we find that these demands are premature. The recovery of input credit involved in these cases shall be regulated in the manner we have indicated, namely, subject to sub-rule (6) of Rule 6 of CCR.

6. The Tribunal in the case of Ratnamani Metals & Tubes Limited (supra) has held that cenvat credit was not permissible on inputs exclusively used in the manufacture of exempted goods. So, I do not find any merit in the submission of the learned Advocate for the Respondent. The case laws relied upon by the learned Advocate are not on the issue as to whether the Explanation-III of Rule 6 (3) of the Rules, would be applicable retrospectively, therefore, there is no need to discuss the said case laws.

7. However, I find force in the submission of the learned Advocate insofar as the Commissioner (Appeals) has set-aside the adjudication order on merits and therefore, the alternative submissions of Revenue neutrality and limitation were not considered. In my considered view, the impugned order is not sustainable on merits. But, the respondent should be given an opportunity to place their submissions on limitation and Revenue neutrality before the Commissioner (Appeals).

8. In view of the above discussion, the impugned order is set-aside and the matter is remanded to Commissioner (Appeals) to decide as to whether the demand is barred by limitation and Revenue neutrality, as contended by the learned Advocate and thereafter to decide for the imposition of penalty and interest. Appeal filed by the Revenue is allowed by way of remand. Needless to say that Commissioner (Appeals) shall give proper opportunity of hearing before passing order.

(Dictated and pronounced in the Court)

(P.K. Das) Member (Judicial) ..KL

6