Full Judgment
2. The appellants are manufacturers of bulk drugs and drug intermediaries. Out of the 56 drugs manufactured by the appellants, about 11 are exempted from payment of duty and rest are dutiable. The appellants availed CENVAT credit on duty paid on the inputs. Some of the inputs used by the appellants which are used in both dutiable and exempted final products. In respect of common inputs used for the manufacture of exempted products, the appellants reversed the credit of the duty before issuing the inputs for production. Further, the appellants have been declaring the fact of the reversal of the credit in respect of the inputs utilized in the manufacture of exempted product in the monthly ER 1 return filed by them. The Revenue felt that the appellants should pay 8% of the sale value of the exempted product under Rule 6(3)(b) of the CENVAT Credit Rules, 2002. Consequent to the proceedings initiated by the Revenue, the lower authorities in two orders demanded a total amount of Rs. 42,60,593/-. Further, a penalty of Rs. 19,50,000/- has been imposed. The first appellate authority confirmed the orders of the lower authorities. Hence, the appellants have come before this Tribunal for relief.
2. Shri G. Shivadas, Ld. Counsel appeared for the appellants and Shri Ganesh Hanuvar, ld. DR for the Revenue.
(i) The reversal of CENVAT credit by he appellants satisfies the Rule 6 of the CENVAT Rules. The following case law were relevant to the cases.CCE v. SPM Instruments India P. Ltd. Final Order No. 1342/04 dt.
5.8.2004.Glaxo Smithkline Consumer Healthcare Ltd. v. CCE (ii) The condition of maintenance for separate accounts is satisfied even by the method of reversal of credit. The following case law were relied.(II) Amco Batteries Ltd. v. CCE The Board's Circular No. 591/28/2001-CX dated 16.10.2001 clarified that what needs to be recovered from a manufacturer producing dutiable and exempted products and who does not maintain separate accounts of CENVAT Credit on the inputs used in the manufacture of exempted products. The above point further amplified in the Board's Circular No.654/45/2002-CEX dated 19.8.2002 and Circular No. 739/55/2003-CX dt.
28.8.2003. Once the credit availed on the inputs has been reversed before the utilization in the final product it cannot be said that the inputs on which the credit has been availed have been used in the manufacture of exempted product. The Tribunal in the case of CCE, Jaipur v. Raja Ram Marbles P. Ltd. and Ors. reported in 2004 (64) RLT 138 (CESTAT-Del.) has held that once the credit has been reversed then it cannot be said that the credit of duty had been availed.
(iii) The first show-cause notice dated 28.11.2003 has sought to demand of duty for the period 3/2002 to 3/2003. Therefore, the demand for the period prior to November, 2002 is barred by limitation. Since there has been no suppression any information longer period cannot be invoked. He relies on the following case law.(A) Ugam Chand Bhandari v. CCE, Madras 2004 (167) ELT 491 (SC) : 2004 (114) ECR 636 (SC).
(B) CCE v. Chemphar Drugs and Liniments (SC) 1989 (40) ELT 279 (SC) : 1989 (21) ECR 182 (SC) - ECR C 1364 SC : ECR C Cus 1421 SC.4. In view of the above submissions penalty under Section 11AC and interest under Section 11AB are not sustained.
5. Ld. SDR reiterates the contents in the orders of the lower authorities.
6. We have gone through the records of the cases carefully. The issue of availing CENVAT credit in respect of common inputs used for dutiable and exempted products is subject matter of litigation in several disputes. The judicial for a have clearly enunciated the principle that once the credit availed in respect of the exempted products is reversed there is no need for payment of duty at 8% of the sale value of the exempted goods. The case laws cited by the ld. Counsel for the appellants are very relevant. Even this bench of this Tribunal, in the case of Glaxo Smithkline Consumer Healthcare Ltd. v. CCE (supra) has held that when the appellants had reversed the entire credit taken on the inputs used for exempted products the demand of 8% is not sustainable. The Hon'ble Supreme Court in the case of Chandrapur Maganet Wires (P) Ltd. (supra) has held that the reversal in Modvat credit indicates as if no credit was taken on the inputs. In a Notification which gives the benefit of the Notification on condition that no Modvat credit has been taken on inputs, reversal of Modvat credit is permissible to avail exemption. Therefore, we hold that the orders in Appeal and Orders-in-Original cannot be sustained. We allow the appeal with consequential relief. There is also no justification for invoking the extended period as the fact of reversal of the Modvat credit had been intimated to the department in ER 1 Return. Both the appeals are allowed.