Qk- la- By RPAD/HAND DELIVERY F.No. V.35/15-11/Adj /2010 · Page 2 of 28 (Appeals) Rules, 2001. It...

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lhek “kqYd ,oa dsUnzh; mRikn “kqYd vk;qDrky;] dsUnzh; mRikn Hkou] jsl dkslZ] fjax jksM jktdksV-360001 CENTRAL EXCISE & CUSTOMS COMMISSIONERATE

CENTRAL EXCISE BHAVAN : RACE COURSE RING ROAD RAJKOT 360 001

Phone – (0281) 2442030, 2441980, 2441982 Fax – (0281) 2443313, 2452967 Email: [email protected] Qk- la- F.No. V.35/15-11/Adj /2010

By RPAD/HAND DELIVERY

vkns”k dh rkjh[k Date of order

08.11.2012 ewy vkns”k la- ORDER IN ORIGINAL NO. 70/COMMR/2012

tkjh djus dh rkjh[k Date of Issue

09.11.2012

vkns”kdrkZ Ordered by

वी प नाभन vk;qDr

ds-m-“kq- vk;qDrky; jktdksV V. Padmanabhan Commissioner,

Customs & Central Excise, Rajkot.

ds lanHkZ esa In the case of

Santosh Starch Products, Santoshdham, Sukhpar Road, Post: Morgar, Taluka: Bhachau, Dist: Kutch – 370 020

dkj.k crkvks la- ,oa frfFk Show Cause Notice No. & Date

V.35/AR-Khr/Commr/123/2010 dated: 06.05.2010

1. जस य (य ) को यह ित भेजी जाती है, उसे य गत योग के िलए िनःशु क दान क जाती है। This copy is granted free of charge for private use of the person(s) to whom it is sent.

2. इस आदेश से असंतु कोई भी य इस आदेश क ाि से तीन माह के भीतर सीमा शु क, उ पाद शु क एवं सेवाकर अपीलीय यायािधकरण, अहमदाबाद पीठ को इस आदेश के व अपील कर सकता है। अपील सहायक र ज ार, सीमा शु क, उ पाद शु क एवं सेवाकर अपीलीय यायािधकरण,O-20, मेघाणीनगर, यु मे टल हॉ पीटल क पाउ ड, अहमदाबाद-380 016 को स बोिधत होनी चा हए। Any person deeming himself aggrieved by this Order may appeal against this Order to the Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad Bench within three months from the date of its communication. The appeal must be addressed to the Assistant Registrar, Customs, Excise and Service Tax Appellate Tribunal, O-20, Meghani Nagar, Mental Hospital Compound, Ahmedabad-380 016.

3. उ अपील ा प सं. इ.ए.3 म दा खल क जानी चा हए। उसपर के य उ पद शु क (अपील) िनयमावली, 2001 के िनयम 3 के उप िनयम (2) म विन द य य ारा ह ता र कए जाएंगे। उ अपील को चार ितय म दा खल कया जाए तथा जस

आदेश के व अपील क गई हो, उसक भी उतनी ह ितयाँ संल न क जाएँ (उनम से कम से कम एक ित मा णत होनी चा हए)। अपील से स बंिधत सभी द तावेज भी चार ितय म अ े षत कए जाने चा हए। The Appeal should be filed in form No. E.A.3. It shall be signed by the persons specified in sub-rule (2) of Rule 3 of the Central Excise

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(Appeals) Rules, 2001. It shall be filed in quadruplicate and shall be accompanied by an equal number of copies of the order appealed against (one of which at least shall be certified copy). All supporting documents of the appeal should be forwarded in quadruplicate.

4. अपील जसम त य का ववरण एवं अपील के आधार शािमल ह, चार ितय म दा खल क जाएगी तथा उसके साथ जस आदेश के व अपील क गई हो, उसक भी उतनी ह ितयाँ संलगन क जाएंगी (उनम से कम से कम एक मा णत ित होगी)। The Appeal including the statement of facts and the grounds of appeal shall be filed in quadruplicate and shall be accompanied by an equal number of copies of the order appealed against (one of which at least shall be a certified copy.)

5. अपील का प अं ेजी अथवा ह द म होगा एवं इसे सं एवं कसी तक अथवा ववरण के बना अपील के कारण के प शीष के अंतगत तैयार करना चा हए एवं ऐसे कारण को मानुसार मां कत करना चा हए। The form of appeal shall be in English or Hindi and should be set forth concisely and under distinct heads of the grounds of appeals without any argument or narrative and such grounds should be numbered consecutively.

6. अिधिनयम क धारा 35 बी के उपब ध के अंतगत िनधा रत फ स जस थान पर पीठ थत है, वहां के कसी भी रा ीयकृत बक क शाखा से यायािधकरण क पीठ के सहायक र ज ार के नाम पर रेखां कत माँग ा ट के ज रए अदा क जाएगी तथा यह माँग ा ट अपील के प के साथ संल न कया जाएगा। The prescribed fee under the provisions of Section 35 B of the Act shall be paid through a crossed demand draft, in favour of the Assistant Registrar of the Bench of the Tribunal, of a branch of any Nationalized Bank located at the place where the Bench is situated and the demand draft shall be attached to the form of appeal.

7. यायालय शु क अिधिनयम, 1970 क अनुसूची-1, मद 6 के अंतगत िनधा रत कए अनुसार संल न कए गए आदेश क ित पर 5.00 पया का यायालय शु क टकट लगा होना चा हए। The copy of this order attached therein should bear a court fee stamp of Re. 1.00 as prescribed under Schedule 1, Item 6 of the Court Fees Act, 1970. 8. अपील पर भी . 5.00 का यायालय शु क टकट लगा होना चा हए। Appeal should also bear a court fee stamp of Rs. 5.00.

3 F. No: V.35/15-11/Adj/2010 S.C.N No: V.35/AR-Khr/Commr/123/2010 M/s. Santosh Starch Products Order-in-Original No: 70/Commr/2012

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BRIEF FACTS:

M/s. Santosh Starch Products, Santoshdham, Sukhpar Road,

Post. Morgar, Taluka-Bhachau (Kutch) (hereinafter referred to as the

“noticee”) is holding Central Excise Registration No. AACCS 7445

NXM001 and are engaged in manufacture of goods falling under

Chapters No. 11, 17 and 35 of the First Schedule to the Central Excise

Tariff Act, 1985 (5 of 1985) (hereinafter referred to as the “Act”). The

noticee is availing Cenvat credit under the Cenvat Credit Rules, 2004

(hereinafter referred to as “Cenvat Rules”.)

2. The noticee is working under self-assessment procedure as per

Central Excise Rules, 2002 and accordingly assessing the value of the

final products himself and determining the Central Excise Duty thereon,

which is reflected in ER-1 monthly returns. The final product is cleared

under Central Excise invoices as per Rule 11 of Central Excise Rules,

2002 wherein they mention the assessable value of the goods and duty

paid thereon. The noticee is availing the facility of payment of Central

Excise Duty on monthly basis as per Rule 8 of Central Excise Rules,

2002.

3. Whereas, on verification of the records of the noticee during audit

it appeared that the noticee were manufacturing and clearing dutiable as

well as exempted finished goods i.e. Maize starch falling under CETH-11

of the Tariff and clearing the same by availing the benefit of Notification

No.6/2002-CE dated 1/3/2002, as amended. Further, it appeared that

the noticee did not file any option as required under Rule 6(3A) of the

Cenvat Credit Rules, 2004, as amended.

4. Whereas, as per the provisions of Rule 6(1) of Cenvat Credit Rules

2004, the Cenvat credit shall not be allowed on such quantity of input

which is used in the manufacture of exempted goods except in the

circumstances mentioned in sub-rule (2). As per Rule 6(2) of Cenvat

Credit Rules, 2004 such manufacturers shall maintain separate

accounts for the receipt, consumption and inventory meant for inputs

used in taxable as well as exempted final products and take Cenvat

credit only on that quantity of input which is intended for use in goods


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on which duty is payable. However, it appeared from the scrutiny of

records maintained by the noticee that they did not maintain separate

accounts as required under the said Rule. Therefore, the noticee were

required to follow the procedure appended to the provisions made in the

Rule 6(3) of Cenvat Credit Rules, 2004 (substituted vide Notification no.

10/2008- CE (NT) dated 01.03.2008 w. e. f. 01.04.2008) which is as

below:

“(3) Notwithstanding anything contained in sub-rules (1) and (2), the

manufacturer of goods or the provider of output service, opting not to

maintain separate accounts, shall follow either of the following

options, as applicable to him, namely:-

(i) the manufacturer of goods shall pay an amount equal to ten per

cent. of value of the exempted goods and the provider of output

service shall pay an amount equal to eight per cent. of value of the

exempted services; or

(ii) the manufacturer of goods or the provider of output service shall

pay an amount equivalent to the CENVAT credit attributable to

inputs and input services used in, or in relation to, the manufacture

of exempted goods or for provision of exempted services subject to

the conditions and procedure specified in sub-rule (3A).

Explanation I.- If the manufacturer of goods or the provider of output

service, avails any of the option under this sub-rule, he shall

exercise such option for all exempted goods manufactured by him or,

as the case may be, all exempted services provided by him, and

such option shall not be withdrawn during the remaining part of the

financial year.

Explanation II.-For removal of doubt, 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 provision of

exempted service.”


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5. However, clause(i) in Rule 6(3)(i) of the Cenvat Credit Rules, 2004

has been substituted vide Notification no. 16/2009- CE (NT) dated

07.07.2009 as below:

“(i) the manufacturer of goods shall pay an amount equal to five per

cent. of value of the exempted goods and the provider of output

service shall pay an amount equal to six per cent. of value of the

exempted services; or”

6. Whereas, prior to the substitution of above mentioned clause in

Rule 6(3) of the Cenvat Credit Rules, 2004 by Notification No. 10/2008-

CE (NT) dated 01.03.2008, the relevant provision appended to Rule

6(3)(b) of Cenvat Credit Rules, 2004 was follows :

“(b)If the exempted goods are other than those described in condition

(a), the manufacturer shall pay an amount equal to ten 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”;

7. Whereas, it appeared that the noticee did not file any intimation in

writing with the department for exercising the option available under the

provisions of Rule 6(3) of the Cenvat Credit Rules, towards non-

maintenance of separate records as envisaged in the provisions of Rule

6(2) of the Cenvat Credit Rules, 2004. Therefore, it appeared that the

noticee was availing the Cenvat credit on all the inputs which were used

in the manufacture of dutiable as well as exempted final products but

have failed to pay an amount as required to be paid by them under rule

6(3)(b) of the Cenvat Credit Rules, 2004. Whereas, it appeared that the

noticee was required to pay an amount equal to ten percent of the value

of the exempted goods i.e. Maize Starch, valued at Rs. 27,10,93,949/-

and cleared during the financial years 2005-06 to 2008-09 and 2009-10

(Upto November, 2009), as per Annexure –A attached to the show cause

notice. Therefore, it appeared that the amount of Rs. 4,29,56,306/- as

per Annexure – “A” was liable to be recovered from the noticee along

with interest.


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8. Whereas the noticee has reversed cenvat credit of Rs. 3,76,693/- (

Rs. 2,12,273 vide Cenvat credit entry no. 478/31.3.2009 and Rs.

1,49,375/- vide PLA entry No.10/31.3.2009) availed by them on packing

materials and also cenvat credit of Rs. 21,919/- vide entry no. 271 dated

30.9.2009 availed on ‘sulphur’, one of the inputs used for manufacturing

of maize starch. Whereas, the Board vide Circular No. 739/55/2003-CX

dated 28-Aug-2003 has clarified that “if the conditions of sub-rule (2) of

Rule 6 are not followed, then the question of taking cenvat credit and

subsequently reversing it does not arise at all”. Therefore, it appeared

that the noticee was required to follow the procedure contained in the

provisions made under rule 6(3) of Cenvat Credit Rules, 2004.

9. Whereas, it appeared that the noticee have neither maintained

separate accounts for the receipt, consumption and inventory meant for

inputs used in exempted final products nor have they informed the

department as required under the Cenvat Credit Rules, 2004 and the

same was detected only during audit. The same was also not disclosed by

the noticee in the ER-1 returns filed by them with the department. As

such it appeared that they have suppressed the facts with an intention to

evade payment of amount as required under rule 6(3)(b) of the Cenvat

Credit Rules, 2004.

10. Whereas, it appeared that the noticee have contravened the

provisions of rule 6 of the Cenvat Credit Rules, 2004 inasmuch as they

have failed to maintain separate accounts for receipt, consumption and

inventory of inputs meant for use in the manufacture of dutiable final

products and the quantity of input meant for use in the manufacture of

exempted goods and take Cenvat credit only on that quantity of input

which is intended for use in the manufacture of dutiable goods. Whereas,

it also appeared that the noticee has failed to pay an amount as required

under rule 6(3)(b)(ii) of the Cenvat Credit Rules, 2004. The details of

amount required to be paid by the noticee as per Rule 6(3)(b) of the

Cenvat Credit Rules, 2004 during the period from April, 2005 to

November, 2009 are as per Annexure-A attached to the notice.


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11. Therefore, show causes notice No. V.35/Ar.Khr/Commr/123/2010

dated 06.05.2010 was issued to the noticee, requiring them to show

cause as to why: -

(i) An amount of Rs. 4,29,56,306/- (Rupees Four crore, twenty

nine lac, fifty six thousand, three hundred and six only) (As per

Annexure-A) should not be demanded and recovered from them

under rule 14 read with rule 6(3)(b) of the Cenvat Credit Rules,

2004 and the amount paid by them so far i.e. Rs. 398612/-

should not be appropriated and adjusted against their said

liability;

(ii) Interest at appropriate rate on the aforesaid amount should

not be demanded and recovered from them under Rule 14 of the

Cenvat Credit Rules, 2004 and the amount paid by them i.e. Rs.

5498/- should not be appropriated and adjusted against their

interest liability;

(iii) Penalty should not be imposed upon them under rule 15 of

the Cenvat Credit Rules, 2004 for suppressing the fact that they

are providing exempted services and not maintaining separate

account for the receipt, consumption and inventory for the taxable

service and non-taxable service.

DEFENCE AND PERSONAL HEARING: 12. The noticee submitted reply to the SCN vide their letter dated

29.06.2010 and inter alia, contended that:

(i) It is provided in the retrospective amendment introduced by the

Finance Act, 2010 that the manufacturer may pay an amount

equivalent to Cenvat credit attributable to the inputs and input

service used in or in relation to the manufacturing of exempted

goods before or after the clearances of such goods and for this

purpose, as provided in section 73(2) of the Finance Act, 2010,

the manufacturer shall apply to the Commissioner of Central

Excise for this option alongwith full details of amount

attributable to the Cenvat credit on inputs used in the


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manufacture of non-dutiable goods. They have already applied

for the availment of the specified option.

(ii) They are manufacturing Maize Starch, Glucose, Maltose, etc.

Maize Starch is itself the basic product for manufacturing other

finished goods like Glucose, Maltose etc. Therefore, major

quantity of the Maize starch produced is captively consumed in

the factory. However, some portion 15%-20% of the maize

starch produced is also sold by them in the open market as per

the demand. On the maize starch, excise duty is not applicable.

For manufacturing the maize starch, the major input used is

“Corn”, “Sulphur” and packing materials.

(iii) For producing maize starch, maize corn is to be steeped in SO2

water for 50-60 hours. The said SO2 water is prepared from

“Sulphur”. This Sulphur is available in market with some excise

registered dealers and some non-registered dealers. The

quantity purchased on which Cenvat credit has been taken is

163.075 MT and quantity purchased on which Cenvat is not

available is 204.235 MT. As the maize starch is the basic

product for all the excisable finished goods, separate account of

the Sulphur which shows the quantity received and consumed

for exempted goods and consumed for producing excisable

finished goods, are maintained only at the time of issuing the -

+maize starch for producing the excisable finished goods. The

monthly summary showing Sulphur issued for exempted goods

and used in excisable goods and their closing balance are

attached. The summary clearly reveals that the quantity of

cenvatable sulphur is 35.730 MT which is used in

manufacturing the exempted goods. The Cenvat credit on this

quantity comes to Rs. 16,858. However, they are reversing all

the Cenvat availed on sulphur which comes to Rs. 1,88,165/- in

their Cenvat credit account at entry No. 271 dated 30.09.2009.

The interest amount of Rs. 5498/- is also paid by them.

Therefore, they have reversed all the Cenvat related to the

sulphur and complying the rule 6(1) of the Cenvat Credit Rules,

2004, hence, they are not liable to pay the amount as specified


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in rule 6(3) of the said rules. In the catena of judgment, it was

decided that when Cenvat credit is reversed in entirety in

respect of inputs which is used in the manufacture of both

dutiable goods and non-dutiable goods, then the provision of

rule 6(3) cannot be invoked, as the requirement of rule 6(1) had

been sufficed.

(iv) With regard to the packing materials, major packing materials

used are HDPE bag, liner, barrel, etc. all of which are

prominently marked with “MAIZE STARCH”. They have to

maintain separate accounts in respect of the packing materials

for each of their finished goods so that selling activity is not

interrupted for want of packing materials. As their packing

materials have prominent marking of the respective finished

goods, it becomes the base for maintaining separate accounts

for each finished product and hence maintain the account for

receipt, consumption and inventory of the packing materials.

(v) As they have maintained separate accounts for the inputs, i.e.,

packing materials meant for use in the manufacturing of Maize

starch, therefore they have squarely complied with the provision

of the said rule 6(2). As they have maintained separate account

for the receipt, consumption and inventory of the packing

materials, their case cannot be brought under the

consequential liability of sub-rule (3). Further, the explanation

II also clarified that Cenvat credit shall not be allowed on inputs

used exclusively for the manufacture of exempted goods. As

they have paid all the Cenvat credit of Rs. 3,76,693/- related to

the packing materials, they have duly complied with the

Explanation II of the sub-rule (3) also. They relied upon the

judgment of CEGAT, Mumbai in case of M/s. Pushpaman

Forging Vs. CCE, Mumbai-VII.

(vi) Moreover, circular 591/28/2001-CX dated 16.10.2001 also

provided that “It follows from the provisions that if the

manufacturer does not fulfill the requirement of either sub-rule

(2) [i.e. maintaining separate accounts] or sub-rule (3) (i.e.


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paying 8% of total price of exempted goods, other than

exceptions specified in clause (a) then in terms of sub-rule (1)

the assessee shall not be allowed credit on such quantity which

is used in the manufacture of exempted goods”.

(vii) Since there is no amount pending, demand of interest should

also be dropped and further since there is neither any

suppression nor any intention to evade payment of duty, it is

requested to drop the penalty proceeding initiated under rule 15

of the Cenvat Credit Rules, 2004. The demand raised by the

SCN is Rs. 4,29,56,306/- whereas total entire Cenvat credit

taken by them upto the audit period is only Rs. 84.70 lac.

13. Further reply to the SCN was submitted by the noticee vide letter

dated 18.10.2011, wherein, it is, inter alia, contended that:

(i) They are also eligible for the exemption under notification

39/2001-CE dated 31.07.2001, wherein all the duties paid

through PLA are refunded to them. Therefore, they are not

benefited from the non-compliance of rule 6(1) or option as

available in rule 6(3) of the Cenvat Credit Rules, 2004. If they

have taken short Cenvat by restricting the input which are

meant for use in manufacture of exempted goods, their PLA

amount will be increased by the restricted amount and the said

PLA will be refunded to them by the department under

notification No. 39/2001. Therefore, they are not extra benefited

from the said non-compliance. Accordingly suppression with

intent to evade the duty payment is absent in their case.

(ii) The period covered in the SCN is from 2005-06 to 2008-09 and

2009-2010 (upto November 2009) by invoking extended time

period of 5 years. The demand is clearly time barred. The

allegations made in para-9 of the SCN are on wrong footing that

they have suppressed the facts from the department with intent

to evade the amount payable under said rule 6(3)(b) of the

Cenvat Credit Rules, 2004. They have given full information of

their manufactured goods to the department at the time of


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registration as well as registration for the exemption under

notification 39/2001-CE dated 31.07.2001. The Central Excise

teams have visited their premises and taken full details of the

manufacturing process, plant and machinery installed and the

nature of product manufactured as well as nature of inputs

they were going to use. Moreover, they have also disclosed in

monthly ER-1 about manufacturing and clearance quantity as

well as value of clearance of exempted goods namely “Maize

Starch”. Further they have also given full details of the raw

material used in the manufacture of Maize Starch in their ER-6

return. While, there is no column in the ER-1 return where they

have to submit to the department about the inputs meant for

use in exempted goods, the said ER-6 return filled the said

deficiency of ER-1. Therefore, the conclusion that they have not

informed the department about such activity is not supported

by the ground realities.

(iii) At least 2-3 audit parties had also visited their premises earlier

to this audit. The current audit was conducted in 2010 while

earlier audit under EA-2000 was conducted in the year 2009.

Therefore, it cannot be said that they have suppressed any

information about the said activity from the department. The

departmental officer as well as CERA audit team had visited

their premises regularly for audit purpose, therefore, the

allegation of suppression with intent to evade the demanded

amount is not justified.

(iv) The ratio of Cenvat credit on the inputs used in the exempted

goods is too low in their case. The total cumulative Cenvat

credit comes to Rs. 3,98,612/- which is taken on the inputs

used for manufacturing the exempted goods for a period of 5

years. Accordingly Cenvat credit taken per month comes to only

Rs. 6,66.67/- approx. They are paying average 50-60 lakh duty

per month basis through PLA. They have never defaulted in the

said duty payment. They have a clean track record with the

Central Excise as well as Customs department. They are also a

star category exporter. Their turnover for Maize Starch for the


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related period is Rs. 27.10 crore. Considering the facts, it

cannot be said that there is any intentional suppression for

duty evasion. Accordingly, the demand may be set aside on the

limitation ground.

(v) Further, the said Cenvat credit of Rs. 3,98,612/- had been

reversed alongwith interest on the instance of audit party. The

reversal shows that there is no intention to evade the duty

payment.

(vi) Their basic raw material is maize and is steeped by SO2 water

obtained from sulphur. Their main raw material maize is non-

excisable goods and therefore no Cenvat credit had been taken

on this product. For steeping the raw material maize, sulphur

consumption ratio is just 0.3% - 0.4% only per tonne of maize.

This steeped corn is further grinded to obtain maize slurry. The

slurry is basic material for every final product. Therefore, for

manufacturing exempted goods, i.e., maize starch, they used

two types of materials on which they avail Cenvat credit, viz.,

sulphur and packing material. The raw material sulphur is

used for preparing SO2 water which in turn is used for steeping

the raw maize/corn though which the basic product maize

slurry is obtained. The slurry is basic material for

manufacturing modified starch, liquid glucose (LG), Malto

Dextrime Powder (MDP) and Maize Starch. Each product

required specified quantity of slurry and on that basis, slurry

consumed in manufacturing of excisable and non excisable

product has been calculated and quantity of sulphur used is

bifurcated. Further, consumption of packing material, viz.,

HDPD/PP/Paper Bags of 25/50 Kgs standard can be easily

identified on the basis of marks mentioned on the bags as well

as quantity sold.

(vii) They have taken total Cenvat credit on sulphur of Rs.

1,88,165/- and on packing material of Maize Starch, Rs.

3,76,693/- for the period under consideration. Out of these

Cenvat credits taken, they have reversed total Rs. 3,76,693/- on


Page 13 of 28

packing material as well as Rs. 21,919/- on sulphur used for

manufacturing the maize starch was paid alongwith interest

when point was raised by the excise audit party. However, for

this Cenvat taken and already reversed amount, the demand

was raised for Rs. 4.27 crore which itself shows that the

demand is not justifiable with respect of Cenvat credit taken.

(viii) They have also applied for the proportionate reversal of Cenvat

credit as per provision of section 73(2) of the Finance Act, 2010

wherein retrospective amendment was given in the rule 6(7) of

the Cenvat Credit Rules, 2004. They have not taken any Cenvat

credit after the period for which the SCN was issued.

14. Personal hearing in the matter was held on 12.09.2012, which was

attended by authorized representative of the noticee. He requested to

consider their application filed under section 73 of the Finance Act, 2010

while deciding the SCN. He also stated that they had exported a

substantial quantity of finished goods, which are excluded from rule 6 of

Cenvat Credit Rules, 2004. They would provide details of export within

seven days.

The details of exports of exempted product made by the noticee

during relevant period was provided vide their letter dated 15.10.2012.

DISCUSSION AND FINDINGS: 15. I have carefully gone through the entire case records, defence put

forth in writing as well as contentions raised during personal hearing. I

find that the limited issue to be decided in the present case is – whether

the noticee is required to pay an amount under rule 6(3) of the Cenvat

Credit Rules, 2004, when they were using common inputs for dutiable as

well as exempted final products and not maintaining separate records?

16. The facts which are not in dispute are that the noticee is engaged

in manufacture and clearance of goods, some of which are dutiable and

one product – Maize Starch is exempted. During the period from 2005-06

to 2009-10 (upto Novermber-2009), the noticee availed credit on inputs


Page 14 of 28

which were commonly used for manufacture of dutiable as well as

exempted product, however, no separate account of the inputs were

maintained. The SCN alleges that since the noticee has not maintained

separate accounts of inputs used in dutiable final products and

exempted final product, they have to pay an amount equal to 5/10% of

the value of the exempted final product as per rule 6(3) of the Cenvat

Credit Rules, 2004. The noticee contends that there are two inputs which

were used commonly for dutiable final products as well as exempted final

products, viz. Sulphur and packing material. However, since they have

reversed total amount of Cenvat credit taken on packing material (Rs.

3,76,693/-) and proportionate Cenvat credit on Sulphur (Rs. 21,919/-),

they are not required to follow rule 6(3) of the Cenvat Credit Rules, 2004.

It is also contended that they have maintained separate accounts of raw

material as per rule 6(2) of the Cenvat Credit Rules, 2004 and therefore

also, their case does not fall within the ambit of rule 6(3) of the Cenvat

Credit Rules, 2004.

17. It is contended by the noticee that the first product being

manufactured in the production line is Maize Starch and it is used for

further manufacture of other dutiable products. That Sulphur is the raw

material used for manufacture of Maize Starch and such sulphur is

procured by them either on payment of duty from registered dealers or

without payment of duty from other dealers. It is contended that they

have used 35.730 MT of sulphur for manufacture of exempted goods, on

which Cenvat credit comes to Rs. 16,858/-, however, they have reversed

Cenvat credit to the tune of Rs. 21,919/-. That they have maintained

separate account of the sulphur at maize starch stage as at that stage

either it is cleared for home consumption or issued for further

manufacture. Regarding packing material, it is contended that the

packing material meant for exempted product is clearly marked as

“Maize Starch” and therefore, separate records is maintained. Moreover,

they have reversed the total credit availed on packing material, with

interest, which tantamount to not taking of Cenvat credit. In this regard,

I find that the account for use of sulphur in manufacture of exempted

product is produced by the noticee, which is based on reverse calculation

method. Since at the time of preparing the slurry, where sulphur is

added to water and corn is steeped in this mixture, it is not known what


Page 15 of 28

amount of maize starch will be cleared for home consumption and what

amount of maize starch will be used captively for further manufacture of

dutiable goods, the separate account submitted now is based on the

figures of captive use of maize starch and clearance of maize starch. This

cannot be termed as maintenance of separate account. Rule 6(2) of the

Cenvat Credit Rules, 2004 clearly stipulates that a manufacturer of

dutiable and exempted products, using common inputs, have to

maintain separate accounts for receipt, consumption and inventory of

inputs. However, in the present case, the accounts were not maintained,

as mandated but the accounts are created based on figures of clearances

and captive consumption. Therefore, this cannot be said to be

compliance to rule 6(2) of the Cenvat Credit Rules, 2004. Regarding

packing material, it is contended that since packing material meant for

maize starch is clearly marked with the name of final product, they have

kept separate account. However, rule 6(2) mandates maintenance of

separate account from receipt stage itself and it is also provided that the

Cenvat credit pertaining to raw material meant for exempted product is

not to be taken. However, it is an admitted fact that the noticee had

taken the Cenvat credit pertaining to packing materials meant for

exempted final product also. Merely because the packing material meant

for exempted product was identifiable does not mean that separate

account was maintained for the same. Therefore, this cannot be treated

as sufficient compliance to rule 6(2) of the Cenvat Credit Rules, 2004.

18. Regarding reversal of credit with interest amounting to not taking

of credit, I find that the noticee has reversed total credit pertaining to

packing material only and not done so in case of Sulphur. In case of

sulphur, proportionate credit is only reversed. Since neither rule 6(1) nor

rule 6(3) of the Cenvat Credit Rules, 2004 provide that total reversal in

case of one common input and partial/proportionate reversal in case of

other product would suffice the requirement of rule 6 of the Cenvat

Credit Rules, 2004, such reversal cannot be considered as fulfillment of

obligation of the noticee under rule 6 of the Cenvat Credit Rules, 2004.

Even if there is one input used by an assessee commonly for

manufacture of dutiable and exempted products, rule 6(3) would come

into picture, if rule 6(2) of the Cenvat Credit Rules, 2004 is not followed

by that assessee. Therefore, I find that sulphur being common input, for


Page 16 of 28

which only proportionate reversal is made by the noticee, this argument

is of no help to them. I find that Hon. Supreme Court has, in the case of

CCE, Nagpur Vs. Ballarpur Industries Ltd. - 2007 (215) E.L.T. 489 (S.C.)

Held that:

Cenvat/Modvat - Stock transfer of pulp which was consumed as

raw material in the manufacture of paper by sister unit of

assessee - Applicability of Rule 57CC of erstwhile Central Excise

Rules, 1944 in absence of sale - Rule 57CC ibid is a provision

which seeks to recover presumptive amount @8% of price of

exempted final goods at the time of removal for sale - Rule

applicable to stock transfers also - Rate of 8% is the measure to

calculate the presumptive sum - Entire rule is based on “deemed

price” and “recovery of presumptive amount” hence, the words

“price charged at the time of sale” must be read as “eight per cent

of the value of exempted goods” - C.B.E. & C.’s Circular No. B-

42/1/96-TRU, dated 27-9-1996 relied - Tribunal’s order set aside

- Rule 6 of Cenvat Credit Rules, 2004. [paras 14, 15, 17, 19].

In another case of CCE, Thane-I Vs. Nicholas Piramal (India) Ltd. -

2009 (244) E.L.T. 321 (Bom.), it is held by Hon. High Court that:

Cenvat/Modvat - Inputs, common inputs used in dutiable and

exempted goods - Tribunal Larger Bench not right in allowing reversal of credit on inputs instead of payment of 8% or 10% of price of exempted goods as per rules - Rule 57C

or Rule 57CC of erstwhile Central Excise Rules, 1944 not

considered by Supreme Court in 1996 (81) E.L.T. 3 (S.C.) and

ratio therein not applicable to construe Rule 6 of Cenvat Credit

Rules, 2002 (now Rule 6 of Cenvat Credit Rules, 2004) -

Hardship in maintaining accounts or following rule not makes

rule absurd or unjust - Difficulty realized and presumptive tax

provided in rules - Rule 6(2) ibid mandatorily applicable once

dutiable and exempted final products manufactured from

common inputs and credit can be availed only in terms of Rule

6(3) ibid - Credit admissible only as per method prescribed and

assessee not having choice of claiming or reversing credit -


Page 17 of 28

Impugned order holding payment of 8% or 10% amount not

required if credit reversed on inputs used in exempted goods, not

agreed with - Rule 57CC of erstwhile Central Excise Rules, 1944.

- If however an assessee can reverse the credit on the final

product, before the goods are taken out of the factory, we fail to

understand why on the same basis it is not possible to maintain

records of the very same inputs which are used in the

manufacture of final products at an intermediate stage... The rule

making authority however noting that inputs may be used both

for manufacturing final products which may be dutiable and

other final products which are exempt, has provided that such

manufacturer will be given credit in so far as inputs used for

manufacturing of dutiable goods, if accounts are maintained in

terms of the rules. Therefore merely because the assessee

contends that he is willing to forego credit on inputs used in the

manufacture of exempted final product does not warrant a

departure from the requirements of Rule 6(2) and 6(3). The rules

contemplate that on failure to maintain accounts in terms of Rule

6(2) the consequences would be in terms of Rule 6(3)(a) or (b).

[paras 1, 14, 19, 21, 22, 24, 27, 31, 32]

Cenvat/Modvat - Method for availing credit - Method prescribed

under Rule 6(3)(b) of Cenvat Credit Rules, 2002 (now Rule 6 of

Cenvat Credit Rules, 2004) contended as not the only method of

providing compliance with sub-rule (1) of Rule 6 ibid - Court

cannot read in rule something different or render otiose the words

therein - Following sub-rule (2) ibid is the only method when

Cenvat credit sought to be availed on inputs used in exempted

goods - Language in Rule 6(1) ibid not grants credit except in

circumstances mentioned in sub-rule (2) ibid - Rule mandatory

and not directory - Once law itself laid down the circumstances

under which credit can be availed, it is that method by which the

credit can be availed - Rule 57CC of erstwhile Central Excise

Rules, 1944. - It is not open to an assessee to contend that

because the have chosen not to maintain the records as required,

revenue authorities even against the grain of the language of the

rule, must estimate the inputs used in the manufacture of final

dutiable products and accordingly, pass necessary orders. It is


Page 18 of 28

also not possible to accept the contention that because they are

familiar with the procedure of ascertaining the amount of credit,

that by itself makes rule 6(3)(b) directory. [paras 25, 27, 28, 31]


exempted goods - Sub-rule (3) of Rule 6 of Cenvat Credit Rules,

2002 (now Rule 6 of Cenvat Credit Rules, 2004) contended as

attracted only when sub-rule (1) of Rule 6 ibid not opted to be

complied with by reversing credit - Rule to be read together to

understand object - Rule 6(2) ibid applicable once dutiable and

exempted final products manufactured from common inputs -

Credit can be availed only in terms of Rule 6(3) ibid. [para 19]


exempted goods - Option to pay 8% or 10% under Rule 6(3) of

Cenvat Credit Rules, 2002 (now Rule 6 of Cenvat Credit Rules,

2004) contended as not available to goods covered by Rule 3(a)

ibid - Rule 3 ibid not relevant in interpreting Rules 6(1) and 6(2)

ibid. [para 20]


exempted goods - Demand of 8%/10% while credit reversed on

inputs used in exempted goods - Submission that pro rata credit

statutorily provided in Cenvat Credit Rules, 2004 w.e.f. 1-4-2008

and that principles and basis enshrined applicable for past

period as rules of procedural law - HELD : Rules in force

applicable - Rules subsequently made cannot be made

retrospective unless so provided - Rule 6 of Cenvat Credit Rules,

2002/2004. [para 30]

Interpretation of statute - Rules, prospective nature - Once there

be rules in force, it is those rules which are applicable - Rules

subsequently made may be as result of experience cannot be

made retrospective unless so provided. [para 30]

Interpretation of statutes - Hardship, relevance in construction of

rule - Hardship cannot result in giving a go-by to language of the

rule and making rule superfluous - Assessee to represent to rule

making authority pointing out defects - Court in the guise of

interpretation cannot take upon task legislative function -

Difficulties in few cases cannot result in departing from normal

rule of construction. - The rule must ordinarily be read in its


Page 19 of 28

literal sense unless it gives rise to an ambiguity or absurd

results. [paras 21, 22, 23]

Statutory provisions - Test of reasonableness - Cenvat/Modvat -

Assessee contending that difficulty in maintaining accounts when

intermediate goods also manufactured and common inputs used

in dutiable and exempted goods manufactured - Difficulty

realized by Finance Minister and presumptive tax provided in

Rule 57CC of erstwhile Central Excise Rules, 1944 and continued

in Rule 6 of Cenvat Credit Rules, 2002/2004. - Merely because

an assessee contends and it may be factually true that in some

instances the rule cannot be followed in the manner of

maintaining accounts that cannot be said to be a tool of

oppression to extract that amount which is beyond the remedial

measure. [para 23]

Statutory provisions - Rules when not absurd or unjust - Not

possible for Legislature to conceive every possible difficulty -

Provision or rule can occasion hardship to a few, that cannot

result in rule being considered as absurd or manifestly unjust. -

Hardship or breaking down of the rule even if it happens in some

cases by itself does not make the rule bad unless the rule itself

cannot be made operative. [para 21]

After going through the above elaborative judgment of Hon. High

Court, it is clear that when separate records are not maintained from

receipt stage upto inventory stage, it is mandatory to pay the amount

specified in rule 6(3) of the Cenvat Credit Rules, 2004 and there is no

other alternative available to the noticee.

19. The noticee has further contended that since they have complied

with the Explanation II of the sub-rule (3), the demand is not

sustainable. They have also relied upon the judgment of Hon. Tribunal in

the case of M/s. Pushpaman Forging Vs. CCE, Mumbai-VII - 2002 (149)

E.L.T. 490 (Tri. - Mumbai). In this regard, I find that the said explanation

pertains to the inputs used exclusively for manufacture of exempted

goods. It is the contention of the noticee that since they have

reversed/paid back the whole Cenvat credit pertaining to packing

material, they have fulfilled the said explanation. However, the


Page 20 of 28

interpretation made by the noticee does not appear to be correct. So far

as inputs which are used for manufacture of only exempted goods are

concerned, it is provided that no Cenvat credit is to be taken on such

inputs. The explanation merely states that the provisions of rule 6(3) are

not applicable to such inputs. However, when common inputs are used

for exempted and dutiable goods, the said explanation has no role to

play. When the noticee availed Cenvat credit commonly for the packing

material used for exempted products as well as dutiable products,

subsequent reversal of the credit ascertained by the noticee, would not

tantamount to fulfillment of rule 6(3) of the Cenvat Credit Rules, 2004.

Further, even if it is considered to be due compliance of rule 6 of the

Cenvat Credit Rules, 2004, the fact remains that the noticee used

Sulphur as common input for manufacture of dutiable goods as well as

exempted goods. However, the noticee has made only proportionate

reversal in case of credit pertaining to sulphur. Therefore, this plea of the

noticee is not tenable. Regarding the case law cited by the noticee, I find

that as discussed hereinabove, Hon. High Court in the case of CCE,

Thane-I Vs. Nicholas Piramal (India) Ltd. - 2009 (244) E.L.T. 321 (Bom.),

has clearly held that there is no other option left with the noticee other

than payment of amount as envisaged in rule 6(3) of the Cenvat Credit

Rules, 2004. Therefore, the citation, which is delivered by the Tribunal in

the year 2002 is over-ruled by the Hon. High Court judgment discussed

above.

20. The noticee has further contended that as per circular No.

591/28/2001-CX dated 16.10.2001, they have an option to reverse the

credit taken on inputs used in the manufacture of exempted goods. I

have gone through the said circular. I find that the said circular has been

further amended by circular No. 654/45/2002-CX dated 19.08.2002.

The relevant portion is reproduced below:

I am directed to refer to Board’s Circular No. 591/28/2001-CX.,

dated 16-10-2001 [2001 (133) E.L.T. T32] on the above subject.

Consequent to issuance of the circular, certain references were

received from field formations to say that the said circular has

gone beyond the scope of the rule and that an option has been

given to the assessee to reverse the actual credit contained in


Page 21 of 28

inputs or pay 8 percent of the price of exempted goods.

Accordingly, the matter has been examined.

Board observes that the provisions of Rule 6 of Cenvat 2. Credit

Rules, 2002 are unambiguous and clear. However, there appears

to be certain misconception in field formations regarding

applicability of the said rule and the said circular. Accordingly, it

is informed that the said circular was issued to clarify the legal

position at the relevant period only. In terms of Rule 6, the

assessee who has not maintained separate inventory and has

taken credit on common inputs to manufacture dutiable and

exempted products [except in the cases mentioned in the

provisions contained in sub-Rule (3)(a)] has no option but to

reverse 8% of the price of the exempted goods as per provisions of

sub-rule (3)(b) of the said rule. In fact, in terms of the

Explanation-II to the said rule, if the said amount is not paid, it

shall be recovered along with interest in the manner as provided

in Rule 12 of Cenvat Credit Rules, 2002. Provisions of Rule 13

would also get attracted.

In view of the above, it is clear that the plea of the noticee is

not tenable.

21. It is also contended by the noticee that they were eligible for

exemption under notification No. 39/2001-CE dated 31.07.2001 and

therefore they are not benefited from non compliance of rule 6(1) or

6(3) of the Cenvat Credit Rules, 2004. If they have taken short

Cenvat credit by restricting the inputs which are meant for use in

manufacture of exempted goods, their PLA amount will be increased

to that extent and the same would be refunded to them under the

said notification. Therefore suppression with intent to evade the

duty payment is absent in their case. In this regard, I find that once

separate accounts for inputs used in manufacture of exempted

goods and inputs used in manufacture of dutiable goods are not

maintained as per rule 6(2) of the Cenvat Credit Rules, 2004, it was

mandatory on the part of the noticee to pay an amount as per rule

6(3) of the Cenvat Credit Rules, 2004. The amount being paid under

rule 6(3) not being “duty of excise”, the same would not have been


Page 22 of 28

refunded to them under notification No. 39/2001-CE, ibid, as the

said notification exempts (by way of refund) the amount of “Central

Excise duty” and not the amount paid under rule 6 of the Cenvat

Credit Rules, 2004. Therefore, the argument of the noticee is

factually incorrect. In any case, this argument is not tenable as it is

hypothetical and based on ifs and buts.

22. The noticee has further contended that it is provided in the

retrospective amendment introduced by the Finance Act, 2010 that a

manufacturer may pay an amount equivalent to Cenvat credit

attributable to the inputs and input service used in or in relation to

the manufacturing of exempted goods before or after the clearance of

such goods and for this purpose, as provided in section 73(2) of the

Finance Act, 2010, they have applied with full details of amount

attributable to the Cenvat credit of inputs used in manufacture of

non-dutiable goods. They have requested to decide their application in

the current proceedings. In this regard, I find that Central Excise

Rules, 1944, Cenvat Credit Rules, 2001, Cenvat Credit Rules, 2002

and Cenvat Credit Rules, 2004 have been amended retrospectively

from 10th September 2004 to 31st March 2008 by the Finance Act,

2010 to provide for reversal of credit or payment of equivalent amount

attributable to the inputs used in or in relation to the excisable goods

on which no central excise duty is payable. These changes have taken

effect from 8th May 2010 on enactment of the Finance Bill, 2010. It is

expressly provided that these provisions apply only to such cases

where the disputes are pending as on the day the Finance Bill 2010 is

enacted.

23. Section 73 of the Finance Act, 2010 amended rule 6 of the

Cenvat Credit Rules, 2004 in the manner specified in column (3) of

the Eighth Schedule with retrospective effect, on or from and upto the

date specified in column (4) thereof, so as to provide for payment by

manufacturer of an amount equal to CENVAT credit attributable to

inputs or input services used in or in relation to manufacture of

exempted goods or goods chargeable to nil rate of duty before or after

clearance of such goods along with interest at the rate of 24% per

annum. The said amendment applies to cases in respect of which a


Page 23 of 28

dispute relating to adjustment of credit on inputs in or in relation to

exempted final products relating to the period beginning on 10th day

of September, 2004 to 31st day of March’2008 (both days inclusive)

was pending on the date on which the Finance Bill, 2010 received the

assent of the President.

The Eighth Schedule to the Finance Act, 2010 is as follows:

THE EIGHTH SCHEDULE

[See Section 73(1)]

S. No.

Provisions of CENVAT Credit Rules, 2004 to be amended

Amendment Period of effect of amendment

(1) (2) (3) (4) Rule 6 of the Cenvat

Credit Rules, 2004 as published vide notification no. G.S.r. 600(E), dated the 10th Septemeber, 2004 [23/2004-CE(NT), dated the 10th Septemebr’2004]

In the CENVAT Credit Rules, 2004, in rule 6, after sub-rule (6), the following sub-rule shall be inserted, namely: ‘(7) Where a dispute relating to adjustment of credit on inputs used in or in relation to exempted final products relating to the period beginning on 10th day of September, 2004 and ending with the 31st day of March’2008 (both days inclusive) is pending on the date on which the Finance Bill, 2010 receives the assent of the President, then notwithstanding anything contained in sub-rule (1) and (2), and clauses (a) and (b) of sub-rule (3), a manufacturer availing CENVAT credit in respect of any inputs or input services and manufacturing final products which are chargeable to duty and also other final products which are exempted goods, may pay an amount equivalent to CENVAT credit attributable to inputs or input services used in, or in relation to the manufacture of , exempted goods before or after the clearance of such goods: Provided that the manufacturer shall pay interest at the rate of twenty-four percent per annum from the due date till the date of payment of the said amount. Explanation – For the purpose of this sub-rule, “due date” means the 5th day of the month following the month in which goods have been cleared from the factory.’

10th day of September, 2004 to 31st day of March, 2008 (both days inclusive)

24. The said Finance Act, 2010 is enacted on 8th May 2010 and

accordingly has become law now. The facility mandated therein can

be availed by eligible entities by making due payment along with

interest @24% per annum. It is informed by the noticee that they have

repaid the entire amount of Cenvat credit availed on packing material

and proportionate credit pertaining to sulphur, during the said period.


Page 24 of 28

25. It is evident from the above that the said changes by way of

insertion of sub-rule (7) to rule 6 of the Cenvat Credit Rules, 2004

were effective only for the period upto 31.03.2008 (column (4) of the

Eighth Schedule to the Finance Act, 2010 as aforesaid refers). Hence,

the provisions of sub-rule (3) to rule 6 of the Cenvat Credit Rules,

2004 are applicable for the period from 01.04.2008 onwards. In

accordance with the said provision, the noticee in the given situation

was liable to pay an amount equal to 10% of the value of the

exempted goods so manufactured and cleared by the noticee during

the year 2008-09 and 2009-10 (upto November-2009). Also, they

would have had option to pay amount equivalent to the Cenvat credit

attributable to inputs and input services used in, or in relation to, the

manufacture of exempted goods as per rule 6(3)(ii) of the said rules

had they intimated the jurisdictional Superintendent of Central Excise

as envisaged in rule 6(3A)(a) of the said rules. The noticee failed in

complying with the said requirement of rule 6(3A)(a) of the said rules,

hence they are left with no other option than to comply with rule

6(3)(ii) of the said rules, i.e., to pay an amount equal to 5%/10% of

the value of the exempted goods.

26. The noticee, vide their application dated 29.06.2010 applied for

availment of option under section 73(2) of the Finance Act, 2010. The

period covered in the application is 2005-06 to 2008-09. However, as

discussed hereinabove, the retrospective amendment made is

applicable only upto 31.03.2008. Therefore, I find that the noticee is

eligible for availing the option upto 31.03.2008 only. The

quantification in respect of credit pertaining to sulphur used for

manufacture of the exempted product, maize starch, is calculated by

the noticee as Rs. 13,054/- for the period from April-05 to March-09.

However, this is carried out by calculating that some of the non

cenvatable sulphur was also used for manufacture of exempted

product, as they were procuring both cenvatable as well as non-

cenvatable sulphur. It is also seen that the noticee has reversed/paid

back Rs. 21,919/- on this count but the interest paid is calculated at

the rate of 13% instead of 24%, as provided in rule 6(7) of the Cenvat

Credit Rules, 2004. The application under rule 6(7) is made by the

noticee as per section 73(2) of the Finance Act, 2010, which reads as:


Page 25 of 28

(2) Where a person opts to pay the amount in accordance with

the provisions as amended by sub-section (1), he shall pay the

amount along with interest specified thereunder and make an

application to the Commissioner of Central Excise along with

documentary evidence and a certificate from a 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 receives the assent

of the President.

A plain reading of the provision would show that the noticee

was required to pay the amount alongwith interest at the rate of 24%

per annum and after that he has to apply to the Commissioner for

availing the benefit of the retrospective amendment made by the

Finance Act, 2010. In the present case, however, the noticee has not

paid the amount of interest at appropriate rate. Further, the

calculation of proportionate credit is also not proper; as the

proportionate credit is calculated by considering that some of the non

cenvatable sulphur was used for manufacture of exempted maize

starch. Though the noticee has reversed full amount of credit availed

on packing material during the relevant period, due to the above

reasons and also due to the fact that the rate of interest paid on

reversal of credit pertaining to packing material is also calculated at

the rate of 13% per annum, the application of the noticee is lacking in

details as well as there is less payment of interest. However, as

provided in section 73(3) of the Finance Act, 2010, the short payment

can be pointed out and if the noticee pays up such short payment, the

benefit cannot be denied. Accordingly, the jurisdictional Deputy

Commissioner was requested to inform the noticee accordingly. In

reply, it was informed that the noticee has calculated the credit on

common inputs upto 31.03.2008 and deferential interest thereon,

which was duly certified by jurisdictional range superintendent. The

proportionate credit in case of sulphur came to Rs. 6136/- and in

case of packing material it came to Rs. 3,73,502/-. The noticee has

also paid differential interest of Rs. 77,328/- vide challan dated


Page 26 of 28

31.10.2012. Therefore, the application of the noticee is now allowed,

for proportionate reversal of credit upto 31.03.2008.

27. During personal hearing, it was also contended by the noticee

that they had exported a substantial quantity of finished goods which

are excluded from rule 6 of the Cenvat Credit Rules, 2004. I find that

the annexure to SCN mentions the quantity and value of exports

made by the noticee. Since as per rule 6(6) of the Cenvat Credit Rules,

2004, the provisions of sub-rules (1), (2), (3) and (4) shall not be

applicable in case the excisable goods removed without payment of

duty are cleared for export under bond in terms of provisions of the

Central Excise Rules, 2002, the contention of the noticee is found to

be correct and demand is required to be reduced to that extent. Since

the demand pertaining to the period prior to 01.04.2008 has been

considered under section 73 of the Finance Act, 2010, in the foregoing

paragraph, the reduction in demand is to be considered only for the

period from 01.04.2008 to November-2009. I find that the

quantification of demand for the said period at the rate of 5/10%

comes to Rs. 77,62,338/-, after excluding the value of exempted

goods cleared for export, which is required to be confirmed under rule

14 of the Cenvat Credit Rules, 2004 read with rule 6(3) of the Cenvat

Credit Rules, 2004. Since the amount is not paid till date, interest

under rule 14 of the Cenvat Credit Rules, 2004 is payable by the

noticee.

28. It is also contended by the noticee that the demand is time barred

as they have not suppressed anything from the department. That officers

visited their factory at the time of registration as well as at the time of

verification of their application for benefit of notification No. 39/2001

and that they have shown clearance of exempted products in their ER-1

return and details of inputs used, in ER-6 returns. It is also contended

that 2-3 audit parties have visited their premises and the activity was

known to the department. It is also contended that the ratio of Cenvat

credit availed is very low compared to their monthly duty payment and

that too has been reversed on being pointed out. Therefore, there was no

malafide intention on their part and therefore extended period cannot be

invoked in their case. In this regard, I find that so far as ER-1 and ER-6


Page 27 of 28

returns are concerned, there is no indication that common inputs were

used for manufacture of dutiable as well as exempted products. Merely

providing list of inputs and list of final products or for that matter,

showing clearance of exempted products in ER-1 return will not mean

that department knew that some common inputs were being used for

manufacture of both types of final products. Regarding visit of officers

and audit parties, I find that it is a lame excuse provided by the noticee.

It is held by Hon. Tribunal in the case of Chemfab Alkalies Ltd. Vs. CCE,

Pondicherry - 2010 (251) E.L.T. 264 (Tri. - Chennai) that:

Demand - Limitation - Cenvat/Modvat - Separate accounts not

maintained of common inputs for exempted and dutiable

products, and particulars of exempted product not submitted to

department every year - Extended period invocable - Rule

6(3)(b) of Cenvat Credit Rules, 2004 - Section 11A of Central

Excise Act, 1944. [para 7]

Demand - Limitation - Suppression - Audit parties visit all

excisable units from time to time - Their visit cannot mean that

extended period will not apply in respect of any unit, as that

would render provision regarding extended period totally

redundant - Section 11A of Central Excise Act, 1944. [para 6]

Therefore, I find that extended period has been correctly

invoked in the SCN. Since this is a clear case of suppression of facts

with intent to evade payment of duty, the penalty under rule 15 of the

Cenvat Credit Rules, 2004 is imposable on the noticee.

29. In view of the above, I pass the following order:

ORDER

(i) For the period before 01.04.2008, I allow the benefit of

section 73(1) of the Finance Act, 2010 to the noticee. The

reversal of credit made by the noticee amounting to Rs.

3,79,638/- (Rs. 6136/- on sulphur and Rs. 3,73,502/- on

packing material) is appropriated and the remaining amount

of reversal, i.e. excess reversal made by the noticee to the


Page 28 of 28

tune of Rs. 18,974/- (Rs. 398612/- - Rs. 3,79,638/-) is

ordered to be adjusted against the demand confirmed for the

remaining period.

(ii) I confirm the demand of amount Rs. 77,62,338/- (Seventy-

seven lakh, sixty-two thousand, three hundred and thirty-

eight only) on the noticee under rule 6(3) of the Cenvat

Credit Rules, 2004 read with rule 14 of the Cenvat Credit

Rules, 2004.

(iii) The amount of demand confirmed should be paid alongwith

interest, as due and payable under rule 14 of the Cenvat

Credit Rules, 2004.

(iv) I impose penalty of Rs. 77,62,338/- on the noticee, under

rule 15 of the Cenvat Credit Rules, 2004. However, if the

demand confirmed alongwith interest is paid by the noticee

within 30 days of receipt of this order, the penalty shall

stand reduced to 25%, provided the reduced penalty is also

paid within 30 days of receipt of this order.

(V. Padmanabhan)

Commissioner F.No.V.35/15-11/Adj/2010 Rajkot, dated: 08.11.2012. BY REGD. POST A.D. To, M/s. Santosh Starch Products Santoshdham, Sukhpur Road, Post Morgar, Taluka-Bhachau(Kutch) Copy to:

1. The Chief Commissioner, Central Excise, Ahmedabad. 2. The Deputy Commissioner, Central Excise, Division,

Gandhidham. 3. The Deputy Commissioner (Audit), Central Excise, Hq. Rajkot. 4. The Assistant Commissioner (Tech), Central Excise, HQ. Rajkot. 5. The Superintendent, Central Excise, AR-Kharirohar. 6. Guard File.

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