ORDER
P.G. Chacko, Member (J)
1. During the period of dispute (September, 2004 -February, 2006), the appellants had manufactured cartons (dutiable) and printed paper labels (exempt from payment of duty). After investigations, the department found that they had taken CENVAT credit of Service Tax paid on eight items of input services viz. (a) Banking and Financial Services; (b) Installation and Commissioning Services; (c) Security Services; (d) Repair and Maintenance Services; (e) Goods Transport Agency Services; (f) Telephone Service; (g) Air Travel Agent Services; and (h) Courier Services. It was found that, though the appellants were maintaining separate inventory in respect of inputs used in or in relation to the manufacture of cartons and labels, they did not maintain similar inventory in respect of the above input services. Hence, in a show-cause notice, the department directed them to pay an amount equal to 10% of the value of the exempted product (printed paper labels) cleared during the above period. This demand was made in terms of Rule 6(3) of the CENVAT Credit Rules, 2004, which required that, where no separate inventory was maintained in respect of inputs and input services by a manufacturer of dutiable and exempted final products, 10% of the sale price of the exempted final products shall be paid to the exchequer. Invoking this provision, the adjudicating authority demanded an amount of Rs. 1.29 crores from the appellants for the above period and also imposed on them equal amount of penalty. It is submitted by learned Counsel today that the entire credit taken of service tax paid on the aforementioned input services was reversed prior to issuance of the show-cause notice and interest thereon was also paid. According to learned Counsel, with the reversal of credit, it was open to the Revenue to invoke Rule (3) of the CENVAT Credit Rules for recovery of 10% of the sale price of the printed labels cleared during the period of dispute. In this connection, reliance has been placed on a plethora of judicial authorities including the Hon’ble Supreme Court in Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur and the Hon’ble Allahabad High Court in Hello Minerals Water (P) Ltd. v. Union of India . We have heard learned SDR also, who has reiterated the findings of the Commissioner.
2. It appears from the impugned order that learned Commissioner has chosen to distinguish the case on hand from that considered by the apex court. He did not consider any of the other decisions cited by the assessee. In the case of Hello Mineral Water (Supra), the Hon’ble High Court granted the benefit of exemption under Notification No. 15/94-CE to the assessee notwithstanding the fact that input duty credit had been taken by them (it was a condition under the Notification that no input stage credit should be taken). The High Court granted the benefit to the assessee after noting that the credit taken had been reversed at a later stage. Prima facie, applying the principle laid down in Chandrapur Magnet (supra) and Hello Minerals Water (supra), it has to be held that the demand raised on the appellants by the Commissioner is unsustainable.
3. Having found prima facie case for the appellants, we grant waiver of predeposit and stay of recovery in respect of the entire demand.
(Dictated and pronounced in open court)