By TIOL News Service

CHENNAI, AUG 05, 2014: THE respondents were engaged in the manufacture of Paper and Newsprint classifiable under Chapter 48 of CETA, 1985 and availing MODVAT/CENVAT credit under CENVAT Credit Rules, 2001. The respondent removed an intermediate product, “Lapped Chemical Bagasse Pulp”, a non-dutiable product. They availed MODVAT/CENVAT credit for inputs viz. Furnace Oil, Hydrogen Peroxide, Caustic Soda, Liquid Chlorine etc. used in the manufacture of dutiable and exempted products. By Show Cause Notice dated 19.7.2002, the respondent was directed to pay the amount of Rs.24,74,092.20 being 8% of the value of clearance of wet lapped bagasse pulp for the period July 2000 to December 2001 under Rule 57AD of the Central Excise Rules, 1944 and Rule 6(3)(b) of CENVAT Credit Rules, 2001. It has also proposed imposition of penalty along with interest. The adjudicating authority dropped the proceedings.

Against the said order, revenue is in appeal. After hearing both sides, the Tribunal held:

The respondents had reversed the credit attributable to inputs used in the manufacture of wet lapped chemical bagasse pulp removed during the material period and thereafter, they started maintaining separate accounts of inputs used in the exempted final product. The Karnataka High Court in the cases of CCE Vs. Himalaya Drug Company - 2011-TIOL-246-HC-KAR-CX and CCE Vs. Kudremukh Iron & Steel Co. Ltd. - 2011 (271) ELT 172 (Kar.) held that common inputs used in the manufacture of dutiable and exempted final products, once proportionate credit on the inputs in exempted products is reversed, there is no requirement to reverse 8% of the price of the exempted goods, even if they had not maintained separate accounts by them. Rule 57AD and Rule 6 was retrospectively amended by Finance Act, 2010 and once the CENVAT credit taken is reversed there is no liability to pay the amount of 8% of the price of the exempted goods.

Accordingly, the Tribunal dismissed the appeal filed by the department.

(See 2014-TIOL-1421-CESTAT-MAD)