ORDER
P.G. Chacko, Member (J)
1. The appellants are engaged in the manufacture of refined edible vegetable oils and allied products. The edible oils manufactured by them were exempt from payment of duty of excise till 28.2.2003 and became dutiable w.e.f. 1.3.2003. During April 2002 to Feb’2003, when the said products were not dutiable, the appellants had received capital goods in their factory and had taken Cenvat credit of the duty paid thereon amounting to Rs. 29,90,702/-. It appeared to the department that since the capital goods had been received and installed prior to 28.2.2003, the above credit was not admissible to the appellants in terms of Rule 6(4) of the Cenvat Credit Rules, 2002 (CCR, 2002, for short). Further, from the results of enquiries made into the process of manufacture of refined edible oils as also from the scrutiny of records maintained by the appellants, it appeared to the department that the appellants were liable to pay, but had not paid, under Rule 6(3)(b) of CCR 2002, 8% of the price of the refined edible oils (unbranded) which had been cleared at ‘Nil’ rate of duty during March to December 2003. This finding was based on the fact that Cenvat credit had been availed on packing materials and chemicals which had been used as common inputs during the said period in relation to the manufacture of both dutiable final products (branded refined edible oils) and exempted final products (unbranded refined edible oils). 8% of the price of the exempted final products was estimated at Rs. 3,78,10,848/-. The department also noticed certain other “wrong” Cenvat credit availments by the appellants. Accordingly, show-cause notice dated 7.4.2004 was issued to the appellants demanding the aforesaid and other amounts (with interest thereon) and proposing penalties. The notice contested the demands. In adjudication of the dispute, learned Commissioner passed the following order:
(A) I demand Rs. 29,40,702/- (Rupees twenty nine lakhs forty thousand seven hundred and two only) being the credit taken on capital goods which were received by the assessee during the period April 2002 to February 2003 for the reasons quoted in para 19 above under Rule 12 of CENVAT Credit Rules, 2002.
(B) I demand an amount of Rs. 3,78,10,848/- (Rupees three crores seventy eight lakhs ten thousand eight hundred and forty eight only) as detailed in Annexure ‘C’ to the SCN as well as explained in paras 20 above being the 8% amount payable on the total price of the Refined Edible Oils (Excluding taxes) which were cleared without payment of duty by availing credit on the common inputs (used both in the duty paid and exempted Refined Edible Oil) under Clause (b) of Sub-Rule (3) of Rule 6 of the Credit Rules, 2002 read with Rule 12 ibid and Section 11A of C.Ex Act, 1944.
(C) I demand an amount of Rs. 32,034/- (Rupees thirty two thousand and thirty four only) as detailed in Annexure ‘C1’ to the SCN, and also explained in para 21 (2) above being the wrong credit availed by them in respect of ‘Film’ which is exclusively used for packing the exempted final product viz. Ground nut oil under Rule 12 of the Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944.
(D) I demand the following amounts under Rule 12 of the Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944.
i. Rs. 56,524/- (Rupees Fifty six thousand five hundred and twenty four only) being the credit taken twice – once during March 2003 and again during April 2003, and appropriate the said amount already paid by the assessee on 19.1.2004 (S.No. 1 of Annexure D to SCN and Para 21 (2) (i) above.
ii. Rs. 1,20,672/- (Rupees One lakh twenty thousand six hundred and seventy two only) being the excess transitional credit taken on furnace oil for the stock lying as on 1st March 2003 and appropriate the said amount already paid by the assessee on 19.1.04 (S. No. 2 to Annexure D to SCN and Paras 21 (2) (i) above)
iii. Rs. 3,60,884/- (Rupees Three lakhs sixty thousand eight hundred and eighty four only) being the excess transitional credit taken on the ‘Films’ lying in stock as on 1.3.03, and appropriate the said amount already paid by the assessee on 19.1.04 (S.No.3 to Annexure D to SCN and para 21 (2) (ii) above)
iv. Rs. 15,810/- (Rupees Fifteen thousand eight hundred and ten only) being the excess credit taken during July, 2003 and appropriate the said amount already paid by the assessee on 23.1.04 (S.No.4 to Annexure ‘D’ to SCN and Para 21 (2) (viii) above).
v. Rs. 68,461/- (Rupees Sixty eight thousand four hundred and sixty one only) being the excess credit taken during September, 2003 and appropriate the said amount already paid by the assessee on 23.1.04 (S.No. 5 to Annexure ‘D’ to SCN and Para 21 (2) (ix) above).
vi. Rs. 29,545/- (Rupees Twenty nine thousand five hundred and forty five only) being the excess credit taken during September, 2003 and appropriate the said amount already paid by the assessee on 23.1.04 (S.No.6 to Annexure ‘D’ to SCN and Para 21 (2) (x) above).
vii. Rs. 2,28,562/- (Rupees Two lakhs twenty eight thousand five hundred and sixty two only) being the excess credit taken and appropriate the said amount already paid by the assessee on 23.1.04 (S.No.7 to Annexure ‘D’ to SCN and Para 21 (2) (xi) above).
viii. Rs. 29,272/- (Rupees Twenty nine thousand two hundred and seventy two only) being the excess Transitional credit taken during March 2003 on the films lying in stock and appropriate the said amount already paid by the assessee on 5.2.04 (S.No.7 to Annexure ‘D’ to SCN and Para 21 (2) (xii) above).
ix. Rs. 45,956/- (Rupees Forty five thousand nine hundred and fifty six only) being the excess transitional credit on Films) lying in stock as on 1.3.03 and appropriate the said amount already paid by the assessee on 5.2.04 (S.No. 29 of Annexure ‘D’ to SCN and Para 21 (2) (xiii) above.
x. Rs. 11,462/- (Rupees Eleven thousand four hundred and sixty two only) being the credit taken twice – first during May 2003 and again during June 2003 and appropriate the said amount already paid by the assessee on 2.2.04 (S.No.30 of Annexure ‘D’ to SCN and Para 21 (2) (xiv) above.
xi. Rs. 51,136 (Rupees Fifty one thousand one hundred and thirty six only) being the wrong credit availed for inputs used in the Effluent Treatment Plant during March 2003 to December 2003 (S.No.8 to 27 of Annexure ‘D’ to SCN and Para 21 (2)(xii) above).
(E) I demand an amount of Rs. 38,392/- (Rupees Thirty eight thousand three hundred and ninety two only) (as listed in Annexure E to SCN) and explained in Para 22 above) being the short payment of duty in respect of clearances of Refined edible oil effected during 1st, 2nd and 3rd March under Section 11A of the Central Excise Act, 1944 read with Rule 8 of the Central Excise Rules 2002 and appropriate the said amount already paid by the assessee on 5.2.2004.
(F) An amount of Rs. 1,22,835/- (Rupees One lakh twenty two thousand eight hundred and thirty five only) (Annexure F to the SCN and Para 23 above) under Section 11A of the Central Excise Act, 1944 being the re-credit in their PLA on their own accord during August 2003 on the grounds that the same has been paid in excess during May 2003 and I appropriate the said amount already paid by the assessee on 23.1.04.
(G) I demand interest at appropriate rate on the credit wrongly taken as demanded under Para 28(A), 28(C); and 28(D)(i) to 28 (xi) above under Rule 12 of the Credit Rules 2002 read with Section 11AB of the Central Excise Act, 1944.
(H) I demand interest at appropriate rate on the amount demanded under Para 28B above as per Explanation II appended to Rule 6 of Credit Rules 2002 read with Rule 12 of the Rules ibid.
(I) I demand interest on the amount of short payment of duty and also the re-credit taken in PLA as demanded under Para 28E and 28F above under Section 11AB of the Central Excise Act, 1944.
(J) I impose penalty of Rs. 5000/- (Rupees Five thousand only) under Rule 27 of the Central Excise Rules, 2002 for the offences/contraventions as described under Para 22, 23 and Para 28 E and 28F above.
(K) I impose a penalty of Rs. 1,00,000/- (Rupees One lakh only) under Sub-rule (1) of Rule 13 of the Credit Rules 2002 for the offences/contravention as detailed in Para 19, 21, 28A and 28D (i) to 28D (xi) above.
(L) I impose a penalty of Rs. 10,00,000/- (Rupees Ten Lakhs only) under Rule 13 of the Credit Rules, 2002 for the offences/contravention described in Para 20, 21 (2), 28B and 28C above.
2. In the present appeal, the appellants are contesting only the demand of duty of Rs. 29,40,702/-, demand of the amount of Rs. 3,78,10,848/- and the penalties.
3. Heard both sides and considered their submissions.
4. Issue No. 1:- Whether the appellants were entitled to take Cenvat credit on 1.3.2003 and thereafter in respect of the capital goods which were received and installed in their factory during April 2002 to February 2003 and used for the manufacture of final products which were exempt from payment of duty of excise during the said period and became dutiable w.e.f 1.3.2003.
4.1. With reference to the relevant provisions of Rule 4 of the CCR, 2002, learned Senior Advocate for the appellants argued that they were entitled to take credit of upto 50% of the duty paid on such capital goods at any point of time in the financial year in which the capital goods were received in their factory. This right accrued to them under Rule 4 (2)(a) of the CCR 2002. Exercise of this right was not barred by anything contained in Rule 6(4) of the CCR, 2002 inasmuch as the “refined edible oils” manufactured by the appellants by making use of the capital goods were dutiable at least during a part (March 2003) of the financial year in which the capital goods were received and installed in the factory. In this connection, reliance was placed on the Tribunal’s decision in Ace Timez v. CCE B’lore . Ld. counsel pointed out that, while refined edible oils were exempt from payment of duty of excise during April 2002 to February 2003, the by-products viz. Soap stock, Acid oil, Wax etc. were dutiable with value-based exemption under SSI Notification during that financial year and, therefore, the embargo under Rule 6(4) was not applicable to the appellants. This argument was contested by ld. SDR, who submitted that the only final products were refined edible oils and the same were chargeable to ‘Nil’ rate of duty during April 2002 to February 2003. Had value-based SSI exemption been available to these final products, then only the appellants could have claimed that the bar under Rule 6(4) was not applicable to the capital goods received in their factory during the said period. As the refined edible oils were not so exempt from payment of duty, the bar under Rule 6(4) was applicable to the capital goods in question. Ld. SDR, further, pointed out that the by-products viz. Soap stock etc. were not “final products” and the capital goods in question were not to be considered to have been used for the manufacture of these goods, for purposes of Rule 6(4). It was argued that, for availing capital goods credit, the relevant date would always be the date of receipt of the capital goods in the factory. The capital goods in question were, admittedly, received in the appellants’ factory during April 2002 to February 2003. During this period, admittedly, the capital goods were used exclusively for the manufacture of exempted final products and, on account of the bar created under Rule 6(4) of the CCR 2002, the appellants were not entitled to take credit of the duty paid on the capital goods. A right which was not available to the party on the relevant dates was inadmissible to them for ever and hence the appellants were not entitled to take credit of any part of the duty paid on the capital goods, as Cenvat credit later in the financial year on the ground that their final products became dutiable in that part of the financial year. In this connection, reliance was placed on the Tribunal’s decision in Commissioner v. Surya Roshni , wherein eligibility for capital goods credit under Rule 57Q of the Central Excise Rules, 1944 was held to be determinable with reference to the date on which the capital goods were received in the factory and it was held that, if on that date, the final products were dutiable, such credit would not be admissible to the manufacturer and that any subsequent event of the final product becoming dutiable would not render the capital goods eligible for credit. Ld. SDR, further, pointed out that the civil appeal filed by M/s. Surya Roshni Ltd. against the Tribunal’s order was dismissed by the apex court. Reliance was also placed on the Tribunal’s decision in Binani Cement Ltd. v. CCE Jaipur , wherein it had been held that the right to take capital goods credit accrued to a manufacturer on the date of receipt of the capital goods in his factory and not on the date of installation of such goods which was only a deferred date of taking credit for administrative reasons. Ld. SDR also relied on the decision in Grasim Industries Ltd. v. CCE Trichy 2004 (176) ELT 265 (Tri.-Chennai) wherein Binani Cement (supra) was followed and it was held that the quantum of capital goods credit permissible to a manufacturer under Rule 57Q of the Central Excise Rules, 1944 could be determined only with reference to the date of receipt of the capital goods in his factory and not the date of its installation. This decision of the Tribunal was upheld by the Supreme Court as reported in 2005 (179) ELT A38 (SC). Ld. SDR also pointed out that Surya Roshni (supra) was followed, on a similar set of facts, in the case of Accumac Machine Tools Pvt. Ltd. v. CCE B’lore 2004 (175) ELT 330 (Tri.-Bang.). She also sought to distinguish the case of Ace Timez (supra) from the present case by submitting that, in the case of Ace Timez, no credit on capital goods had been availed by the party in the financial year in which the capital goods had been received in their factory, unlike in the present case. With reference to the counsel’s submission that, as the appellants were manufacturing dutiable by-products (Soap stock, Acid oil and Wax) also during the period of dispute, the capital goods received in their factory during such period did not become ineligible for credit under Rule 6(4) ibid, ld. SDR submitted that Rule 6 did not recognize byproducts as final products and, in this connection, she relied on the Tribunal’s decision in BOC India Ltd. v. CCE Chennai .
4.2. We have given careful consideration to the submissions on the issue. Admittedly, during a major part (April 2002 to February 2003) of the financial year (2002-03), the appellants’ final product viz. refined edible oils were exempt from payment of duty of excise. It was only w.e.f. 1.3.2003 that these final products became dutiable. The capital goods in question had been received and installed in the factory during April 2002 -February 2003 when the final products were not dutiable. The question now to be considered is whether, on account of the final products being dutiable in March 2003, the appellants were entitled to take Cenvat credit to the extent of 50% of the duty paid on the capital goods in terms of Rule 4(2)(a) of the Central Excise Rules, 2002. This provision of law reads as under:
(2)(a) The CENVAT credit in respect of capital goods received in a factory at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year:
Provided that the CENVAT credit in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year if the said capital goods are cleared as such in the same financial year.”
According to learned Counsel, the date of receipt of capital goods in factory is immaterial for the above provision and, therefore, credit of upto 50% of the duty paid on capital goods received at any point of time in a given financial year would be available, in the same financial year, to the manufacturer who uses the capital goods for manufacture of his final products which are dutiable at least for a part of the financial year. On the other hand, according to ld. SDR, for the above benefit, the final products must be dutiable when the capital goods are received in the factory. This argument is based on Sub-rule (4) of Rule 6 of the CCR, 2002. This sub-rule reads as under:
(4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.
When the capital goods in question were received in the factory, the final products viz. edible vegetable oils were exempt from payment of duty or account of the fact that they were chargeable to ‘Nil’ rate of duty. At the same time, by-products viz. Soap stock etc. were eligible for value-based exemption under SSI Notification. Ld. SDR would consider the capital goods to have been used for manufacturing edible vegetable oils only. In her view, capital goods cannot be said to have been used for manufacturing Soap stock etc. Ld. counsel has argued that, in terms of Sub-rule (4) of Rule 6 ibid, credit would be available for capital goods which were used for the manufacture of the by-products which were exempt from payment of duty in value-based manner under SSI Notification throughout the financial year.
4.3. We find that, for the relevant period, the Rule which conferred on a manufacturer/producer of final products the right to take Cenvat credit on inputs and capital goods is Rule 3 of the CCR, 2002, according to which a manufacturer or producer of final products shall be allowed to take credit of various duties of excise (specified under the Rule) paid on any inputs or capital goods received in the factory on after the first day of March 2002. In respect of capital goods, it appears, they refrained from taking credit on or immediately after the dates of receipt of the capital goods in their factory, falling within the period 1.4.2002 to 28.2.2003. This was obviously because their final products viz. refined edible vegetable oils were chargeable to ‘Nil’ rate of duty under the Tariff during the said period. The fact that, during that period, their by-products were dutiable but eligible for value-based exemption from payment of duty under SSI Notification did not detract from this stance. The appellants, admittedly, started taking capital goods credit only from 1.3.2003, the date on which refined edible oils became dutiable under the 2003 Budget of the Central Government. The question to be considered is whether the right to take capital goods credit accrued to them on the dates of receipt of the capital goods in their factory or on the date on which their final products became dutiable. A similar question was considered by the Tribunal in the case of Surya Roshni (supra) and it was held as under:
The availability of Modvat credit is to be looked into at the time of receipt of the capital goods. If the capital goods are exclusively used in the manufacture of exempted products, Modvat credit will not be available to the manufacturer. Subsequently, the exempted product became dutiable on account of withdrawal of exemption or the manufacturer puts the capital goods to other use would not revive the question of Modvat credit which stands determined at the time the capital goods was received.
The appeal filed by the party before the Supreme Court against the above decision was dismissed as not maintainable. In the case of Binani Cement (supra), the capital goods were received in the factory during the period 17.7.96 to 31.8.96 and were installed in November 1996. A dispute arose as to whether Modvat credit on the capital goods could be availed by the manufacturer on the date of installation. It was held that the relevant date for availment of capital goods credit was the date of receipt of the capital goods in the factory and that the date of installation of the goods was only a deferred date of taking credit for administrative reasons. This view was followed by the Tribunal in the case of Grasim Industries (supra), wherein it was held to the effect that capital goods credit was admissible on the date of receipt of the goods in the factory and that the quantum of such credit must be determined with reference to the said date and not with reference to the date of installation or use of the capital goods. The Tribunal’s decision in Grasim Industries (supra) was upheld on merits by the Supreme Court. Thus the view taken by the Tribunal in Surya Roshni (supra) and Grasim Industries (supra) stands upheld by the apex court.
4.4. It was argued by ld. counsel that the above view taken in relation to the erstwhile Rule 57Q was not applicable to the present case falling under the CCR, 2002. It was argued that, under the new rules, credit to the extent of 50% of the duty paid on capital goods could be availed at any point of time in the financial year in which the capital goods were received in the factory. We find that this argument is based on Rule 4(2)(a) of the CCR, 2002, reproduced in an earlier part of this order. Ld. counsel appears to have construed “CENVAT credit in respect of capital goods received in a factory at any point of time in a given financial year shall be taken only for an amount…” as “CENVAT credit in respect of capital goods received in a factory shall be taken at any point of time in a given financial year for an amount…”. In our considered view, this construction of the provision by ld. counsel is not correct as it is not harmonious with Rule 3(1), wherein the right to take capital goods credit was conferred on a manufacturer/producer of final products, and Rule 6(4), which barred availment of credit on capital goods used exclusively in the manufacture of exempted final products. The nature of the benefit has to be gathered from the text of the provision of law which confers it on the beneficiary. Capital goods credit was allowed to the appellants by Rule 3(1) of the CCR, 2002, which allowed the manufacturer or producer of final products to take credit of specified duties of excise paid on any inputs or capital goods received in the factory on or after the first day of March 2002. This provision itself appears to have recognized the date of receipt of inputs/capital goods in factory as the ‘relevant date’ for a manufacturer of final products to exercise his right of taking Cenvat credit. Hence it is not correct to say that the CCR, 2002 treat inputs and capital goods differently with regard to the date on which credit of duty paid thereon could be taken by the manufacturer of final products. In respect of inputs, Rule 6(1) is in the nature of a proviso to Rule 3 inasmuch as Rule 6(1) prohibits availment of Cenvat credit on such quantity of inputs which is used in the manufacture of final products exempt from payment of duty. Similarly, Rule 6(4) is in the nature of a proviso to Rule 3 insofar as the capital goods are concerned. It prohibits availment of Cenvat credit on capital goods which are used exclusively in the manufacture of exempted final products. Hence these provisions of Rule 6 should also be interpreted in a manner harmonious with Rule 3. We also note that Rule 6(4) of CCR 2002 is both textually and contextually similar to the erstwhile 57R (1) reading as under:
No credit of the specified duty shall be allowed on capital goods which are used exclusively in the manufacture of final products other than final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year….
At the same time, Rule 3 of the CCR 2002 corresponds to the erstwhile 57Q of the Central Excise Rules, 1944. In the case of Surya Roshni (supra), this Tribunal interpreted the provisions of Rule 57Q and Rule 57R(1) and took the view that the right to take capital goods credit was determinable with reference to the time of receipt of the capital goods in the factory and that, if, at such time, the manufacturer was not eligible for the credit, he could not subsequently become so eligible in changed circumstances. In that case, on the date of receipt of the capital goods in the factory, the final product was exempt from payment of duty of excise and, therefore, capital goods credit was not admissible to the manufacturer of final product. The final product became dutiable later on account of withdrawal of the exemption. The Tribunal held that this event did not revive the manufacturer’s right to take capital goods credit. It was this view which was upheld by the Supreme Court vide 2003 (158) ELT A.273 (SC). Similar view taken by the Tribunal in Grasim Industries (supra) was also upheld by the apex court vide 2005 (179) ELT A.38 (SC). It is certainly applicable to the present case for the reason which we have already recorded.
4.5. In the case of Ace Timez (supra) cited by learned Counsel, neither the decision rendered in Surya Roshni (supra) nor the one rendered in Grasim Industries (supra) was placed before the Bench. Hence we are not in a position to follow the ratio of the decision rendered by the co-ordinate bench in Ace Timez (supra).
4.6. In the result, our decision on the issue goes in favour of the Revenue. Accordingly, it is held that the appellants were not entitled to take Cenvat credit, after 28.2.2003, of the duty paid on the capital goods received in their factory between 1.4.2002 and 28.2.2003. The demand of duty of Rs. 29,40,702/- stands confirmed against the appellants.
5.0. Issue No. 2: Whether the appellants are liable to pay 8% of the value of the exempted final products cleared from their factory during March to December 2003, under Rule 6(3)(b) of the CCR 2002.
5.1 The submissions made by both sides on this issue call for a mention of the relevant aspects of the appellants’ manufacturing activity. During the material period, they were engaged in the process of refining crude vegetable oils, which was a continuous process as shown in the following flow chart:
(???) (IMG)
The appellants also used to procure processed (refined) edible vegetable oil on payment of duty and subject the same, along with the vegetable oil in the above stream, to de-odourisation followed by filtration. The entire refined oil was stocked in a common storage tank, wherefrom the oil was micro-filtered and finally stored in a service tank, from which the refined oil was transferred to the packing division. In the packing division, the refined oil would be made into retail packs of 1 litre, 500 ml, 200 ml. etc. Refined edible vegetable oils were chargeable to ‘Nil’ rate of duty under the Tariff till 28.2.2003 and became dutiable from 1.3.03 as per Notification No. 6/2002-CE 1.3.2002 as amended by Notification No. 6/2003-CE dt. 1.3.2003. But what became so dutiable was only the refined edible oil put up in unit containers for retail sale and bearing a brand name. The unbranded oil sold in bulk was exempt from payment of duty. The refined edible oils procured from other refineries were also in this exempted category as they were procured in bulk without brand name. This situation continued upto 29.4.2003. Notification No. 30/2003-CE dt. 30.4.03 changed the duty structure for refined edible vegetable oils. Accordingly, w.e.f. 30.4.03, refined edible oils, if manufactured out of refined oils on which appropriate duty of excise under the First Schedule to the Central Excise Tariff Act or Additional Customs duty under the Customs Tariff Act had already been paid, were chargeable to ‘Nil’ rate of duty. All other refined edible oils were chargeable to duty at the rate of Re. 1 per kg. from 30.4.03.
5.2. The appellants scrupulously followed the above pattern. In other words, during the period of dispute (March to December 2003), the appellants were clearing one stream of refined edible vegetable oils on payment of duty and another stream without payment of duty. Plastic film, BOPP tape etc. were used for the packing of the refined oil produced in both the streams and Cenvat credit was taken on these common inputs during the said period. In the impugned order, ld. Commissioner found that the appellants had not maintained separate/proper accounts for receipt, consumption and inventory of inputs used in the manufacture of dutiable final products and exempted final products during the said period and, therefore, in terms of Rule 6(3)(b) of the CCR 2002, they were liable to pay to the Revenue 8% of the value (excluding sales tax and other taxes) of the exempted final product sold by them from their factory during such period.
5.3. Ld. Sr. Advocate submitted that the appellants had, in fact, maintained separate accounts in respect of inputs used in the manufacture of dutiable final products and those used in the manufacture of exempted final products during the above period in terms of Rule 6(2). They had not opted not to maintain such accounts and, therefore, Rule 6(3) was not applicable to them. As per the separate accounts maintained by them, the appellants had taken credit only on that quantity of inputs which was used in the manufacture of the edible oils cleared on payment of duty and had not taken similar credit on the inputs used in the manufacture of the exempted category of final products. A small amount of credit wrongly taken on such inputs (used in the manufacture of exempted final products) was reversed later but before issue of the SCN. Ld. counsel argued that, with such reversal of credit, the position would be that the appellants had not at all taken input-duty credit in relation to the exempted final products. Therefore, according to him, the appellants were not liable to make any payment under Rule 6(3)(b) of the CCR 2002. In this connection, he relied on the Supreme Court’s judgments in the cases of Chandrapur Magnet Wires (P) Ltd. v. CCE Nagpur and Orissa Extrusions v. CCE Bhuvaneswar and the Tribunal’s decision in the cases of Glaxo Smithkline Consumer Healthcare Ltd. v. CCE 2004 (63) RUT 173 (CESTAT-Ban.) and Ballarpur Industries Ltd. v. CCE 2006 (201) ELT 146 (Tri.-Mum.). The contention of the counsel was contested by ld. SDR who relied on the Supreme Court’s judgment in Amrit Paper v. CCE Ludhiana 2006-TIOL-85-SC-CX. It was submitted that the view taken by the court in the case of Orissa Extrusions had been overruled by the Larger Bench in Amrit Paper (supra). According to ld. SDR, in view of the apex court’s ruling in Amrit Paper (supra), the appellants could no longer rely on the apex court’s judgments in Chandrapur Magnet case and Orissa Extrusions case. The point made by ld. SDR was that the vice of wrong availment of credit could not be undone by its subsequent reversal and, therefore, the appellants’ conduct attracted Rule 6(3)(b) of the CCR 2002 inasmuch as, admittedly, they had taken credit on inputs used in the manufacture of exempted final products during the period of dispute.
5.4. Yet another submission by learned Counsel was that mere de-odourisation and filtration of refined vegetable oil did not amount to “manufacture” and, therefore, the final product resulting from these processes, undertaken on duty-paid refined vegetable oil procured from other refineries, was not excisable. It was argued that the above processes on the refined vegetable oil procured from other refineries were only meant to enhance its marketability and would not be covered by the definition of “manufacture” within the meaning of Note 4 to Chapter 15 of the CETA Schedule. In this connection, reliance was placed on the Tribunal’s decision in the case of Buns & Cones Pvt. Ltd v. Commissioner and the Supreme Court’s judgment in Shyam Oil Cake Ltd. v. Collector . Ld. SDR pointed out that the appellants had not raised such a plea earlier and that, having availed themselves of the benefit of Notification No. 37/2003-CE from 30.4.03 in respect of the above product, they were not entitled to raise the plea. The Notification prescribed ‘Nil’ rate of duty for refined edible oils, if manufactured out of refined edible oil on which appropriate duty of excise under the CETA Schedule (where the input oil was procured indigenously) or Additional Customs Duty under the CTA Schedule (where the input oil was imported) had already been paid. Admittedly, the appellants enjoyed the benefit of this ‘Nil’ rate of duty for the refined edible oil obtained by de-odourisation and filtration of the duty-paid refined oil procured from other refineries. By doing so, they were virtually conceding that refined edible oils could be “manufactured” out of refined edible oils in terms of Note 4 to Chapter 15 of the CETA Schedule. Ld. counsel had no answer to this argument of ld. SDR. We have found substance in the SDR’s submissions and, therefore, reject the counsel’s plea that no “manufacture” was involved in the processes undertaken by the appellants on the duty-paid refined vegetable oils procured by them from other refineries. The Tribunal’s decision in Bun & Cones Pvt. Ltd. (supra) or the apex court’s decision in Shyam Oil Cake Ltd. (supra) is of no aid to the appellants in the facts of the present case. It is particularly noteworthy that, in the case of Shyam Oil Cake Ltd., the apex court was dealing with the question whether certain processes undertaken by the party on edible vegetable oil purchased from the open market amounted to ‘manufacture’ within the meaning of this term defined under Section 2(f) of the Central Excises & Salt Act, 1944 as this provision stood prior to 1986. Their lordships held that, in the absence of Section Note or Chapter Note deeming the processes to be amounting to “manufacture”, the assessee could not be held to have manufactured any new excisable product out of edible vegetable oil purchased from the open market. The appellants can hardly claim the benefit of this decision inasmuch as, in the present case, refined edible vegetable oil could be “manufactured” out of duty-paid refined edible vegetable oil by subjecting the input oil to any of the processes mentioned in the aforesaid Chapter Note. It was precisely this situation which was contemplated in Notification No. 37/2003-CE ibid which prescribed ‘Nil’ rate of duty for edible vegetable oil “manufactured” out of duty-paid edible vegetable oil.
5.5. We have carefully considered the substantive submissions also. The allegation in the SCN was that the appellants did not maintain separate accounts in respect of input (plastic film) used in relation to the manufacture of dutiable final product and in respect of the same input used in relation to the manufacture of exempted final product. The adjudicating authority found that they did not maintain proper account in respect of the common input used in relation to the manufacture of the dutiable and exempted final products. The appellants are up in arms against this finding. Their case is that they maintained separate accounts for receipt, consumption and inventory of such inputs and took Cenvat credit only on that quantity of inputs which was intended for use in the manufacture of dutiable final product. Any credit wrongly taken on such input was reversed prior to issuance of the SCN. Thus, according to the appellants, they had opted to work under Sub-rule (2) of Rule 6 of the CCR 2002. The Revenue has contested this claim. Reiterating the relevant findings of the Commissioner, learned SDR has submitted that separate accounts contemplated under Rule 6(2) were not properly maintained by the appellants during the period of dispute and, therefore, they were liable, under Sub-rule (3)(b), to pay an amount equal to 8% of the price of the exempted final product sold by them during such period. The relevant provisions of Rule 6 are reproduced below:
Rule 6. Obligation of manufacturer of dutiable and exempted goods.– (1) The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in Sub-rule (2).
Provided…rule.
(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods.
(3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:
(a)…
(b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to eight per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
Explanation I. – The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer by debiting the CENVAT credit or otherwise.
Explanation II. – If the manufacturer fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in Rule 12, for recovery of CENVAT credit wrongly taken.
As rightly submitted by learned Counsel, Sub-rule (3) would be applicable only where the manufacturer opted not to maintain separate accounts as required under Sub-rule (2). In other words, if it is shown that the manufacturer, under Rule 6(2), had maintained separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and those meant for use in the manufacture of exempted final products during the period of dispute, there will be no question of raising any demand under Sub-rule (3) of Rule 6, which would be applicable only in a case where the manufacturer opted not to maintain such accounts. Proceeding on this premise, we have examined the records.
5.6. The period of dispute relevant to the present issue is March to December 2003. The appellants have placed on record two ledger accounts relating to this period, one titled “Films Cenvat Ledger Account” and the other titled “Film Ledger Account”. Films Cenvat Ledger Account contains particulars of input (plastic film) procured from various suppliers and used in the manufacture of dutiable final products. These particulars are (1) Date (2) Name of supplier (3) Voucher No. (4) Narration (description of goods) (5) Quantity in Kgs. (6) Price rate per Kg. (7) Total price (in rupees) (8) Cenvat (in rupees) and (9) Cenvat credit (in rupees). Ld. counsel has explained that all the necessary particulars of input used in the manufacture of dutiable final products, including the amounts of Cenvat credit taken, were available from “Films Cenvat Ledger Account”. The “Film Ledger Account” contains the particulars of plastic film procured by the appellants from various suppliers and used in the manufacture of exempted final products during the above period. All the above particulars except Cenvat credit are found in this account also. The appellants have also produced a tabular statement titled “FILM CONSUMPTION FOR EXEMPTED STOCK (MONTHWISE) AS PER CENTRAL EXCISE SCN”. This statement contains particulars of monthwise consumption of plastic film for the period May to December 2003. It also incorporates particulars of bills covering input on which Cenvat credit was not taken. It appears from the two “ledger accounts” produced by the appellants that they were maintaining separate accounts in respect of input used in the manufacture of dutiable final products and input used in the manufacture of exempted final products. Of course, they maintained such accounts in their own formats in the absence of any format prescribed by the department. In any case, it can hardly be said that the appellants had not opted to maintain separate accounts required under Sub-rule (2) of Rule 6 and, therefore, the demand raised on them under Sub-rule (3) will not be sustainable.
5.7. According to the adjudicating authority, the appellants were not maintaining “proper accounts” for receipt, consumption and inventory of inputs. In the absence of any format prescribed by the department for maintaining such accounts, what requires to be ascertained is whether the appellants were maintaining accounts in substantial compliance with the requirement of Sub-rule (2) of Rule 6. After a scrutiny of the ledger accounts produced by the appellants, we are of the view that they were maintaining separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable and exempted products, in substantial compliance with Rule 6(2). They did not opt not to maintain separate accounts and, therefore, they had no liability under Rule 6(3).
5.8. Rule 6(2) further stipulated that Cenvat credit be taken only on that quantity of inputs which was intended for use in the manufacture of dutiable goods. One finding of the Commissioner is that they took Cenvat credit on input which was used in the manufacture of exempted goods also. The appellants claim that such credit which was wrongly taken to the extent of Rs. 3.28 lakhs was voluntarily reversed before issuance of the SCN. If any such credit remains to be reversed, they are ready to reverse it. In this connection, learned Counsel has relied on the Supreme court’s judgment in Chandrapur Magnet Wires (supra) and the Tribunal’s decision in Glaxosmithkline Consumer Healthcare (supra) and Ballarpur Industries (supra). Ld. SDR has contested the appellants’ claim on the strength of the Supreme Court’s judgment in the case of Amrit Paper (supra). We are of the view that these rival case law citations are not relevant inasmuch as the demand of the Revenue is not for any amount of duty equivalent to Cenvat credit irregularly or illegally taken, nor for any amount of duty remaining unpaid under claim of exemption on ‘no-cenvat credit-on-input’ condition. The Revenue’s demand is for an amount equal to 8% of the price of the exempted goods removed from the appellants’ factory during the period of dispute and the same stands on a different footing.
5.9. In the result, the issue is held in favour of the appellants and the demand of Rs. 3,78,10,848 is set aside. The appellants, however, will be liable to reverse, in their Cenvat Account, to the satisfaction of the Commissioner, whatever credit remains to be reversed in respect of inputs used in the manufacture of exempted final products during the period of dispute. For this limited purpose, they may be given a reasonable opportunity of adducing evidence and being heard.
6. Having vacated the major demand raised in the impugned order against the appellants, and having regard to the fact that the dispute between the appellants and the department in relation to Cenvat credit on capital goods was predominantly in the nature of interpretation of provisions of the CCR 2002, we are of the view that there shall be no penalty on the party and, accordingly, the penalties are set aside.
7. The appeal stands partly allowed.
(Operative part of the order was pronounced in open court on 10.1.2007)