1. The appellants were denied modvat credit to the tune of Rs. 81,900/- along with imposition of penalty of Rs. 2,000/-. The appellants used various inputs for manufacture of final products, viz. patent and proprietary medicines, some of which are chargeable to nil duty whereas the rest are cleared on payment of duty at the appropriate rate. The appellants removed the medicines at nil rate of duty without payment of 8% of the value of such goods, therefore the said amount was demanded from them in terms of the impugned orders. In the appeal, it has been submitted that the allegation that they had taken credit in respect of the inputs which have been used in the exempted final product, is not correct. It is claimed by the appellants that they maintained separate inventory records for exempted items, and the allegation that the common raw materials are used for dutiable and duty free final products is imaginary. While this version is recorded in the order-in-original, the same is countered by saying that the assessees have common inputs and they are engaged in the manufacture of dutiable and duty free goods and using common inputs. Therefore, they are required to pay 8% of the price of the exempted final products at the point of clearance, or the manufacturer was required to maintain separate inventory and account of the receipts and use of the inputs for the aforesaid purpose. It is further held that the assessees have failed to establish that they have maintained separate accounts.
2. In the appeal memorandum, it has been brought out that certain inputs which have been used in the exempted products, were out of the stock, on which no credit was taken. In the order-in-appeal, it has not come out as to whether the credit availed on 6.4.1998, 10.4.1998 and 11.4.1998 refers to the availment of credit with reference to the inputs used in the manufacture of duty free finished goods. The appellants assert that, though the common inputs are involved, the finished goods under clearance for which duty has been demanded, have been manufactured from inputs on which no credit has been taken. In this case, the evidence furnished by the appellants regarding the use of the inputs without taking credit thereon has not been assailed.
Since the credit cannot be denied in cases where the accounts indicate that the credit has not been taken on the inputs used in the duty free finished goods, the amount of duty demanded and the penalty imposed in the impugned order cannot be sustained. The Board's Circular No.591/28/2001-CX dated 16.10.2001 and the decision of the Tribunal in the case of Rochees Watches Ltd. v. CC, Jaipur 2003 (152) ELT 420 are referred.
3. The appeal is accordingly allowed and the impugned order of the lower authority set aside.