1. Revenue has filed this appeal against Order-in-Original No. 04/2006 dated 6.2.2006 passed by the Commissioner of Customs & Central Excise, Tirupati.
2. The issue involves interpretation of notification 67/95 and Rule 6 of Cenvat Credit Rules.
3. The respondents are manufacturers of Pig Iron, Cement and Ductile Iron Pipes. All these items are dutiable. They are having separate divisions for the manufacture of these three excisable products. The raw materials for the manufacture of DI Pipes are Pig Iron and Cement.
During the period from April 2004, February 2005, the respondents availed exemption for the Pig Iron and Cement manufactured by them under notification 67/95 and captively consumed for the manufacture of DI Pipes. The DI Pipes were partly cleared on payment of duty and partly cleared on exemption. The point at issue is whether the Commissioner was correct in allowing the benefit of exemption notification 67/95 to the respondents. A show cause notice was issued to the respondents holding that the exemption 67/95 is not available to Pig Iron and Cement manufactured and captively consumed by the respondents. The reasons are that the Pig Iron and Cement manufactured cannot be called as intermediary goods, as they themselves are final products and therefore duty has to be discharged. The other objection is the final product DI Pipes are cleared by the respondents free of duty by availing two exemption notifications. Since, the final products are cleared by availing exemption notifications, benefit of notification 67/95 will not be applicable to the Pig Iron and Cement in terms of the proviso to the said notification. A show cause notice demanded Rs. 2,56,94,123/- on Pig Iron and Rs. 5,41,350/- on the Cement. The Adjudicating Authority after careful analysis of the relevant notification and the relevant Rule of Cenvat Credit Rules, came to the conclusion that the demand is not sustainable. Hence, he dropped the demand. However, the Revenue is aggrieved over the impugned order and therefore Revenue has filed this appeal. The main ground of appeal of the Revenue is that the Pig Iron and Cements manufactured by the respondents are captively consumed. They would be entitled for the benefit of notification 67/95 only when the final products are cleared on payment of duty. In the present case a part of the final products are cleared on the basis of two exemption notifications. Therefore, the benefit of exemption notification 67/95 will not be applicable.
According to the Revenue, in a situation like this, even Rule 6 of Cenvat Credit Rules is not applicable. The learned Departmental Representative reiterated the grounds of appeal.
4. Shri G.P. Sastry, learned advocate, appeared on behalf of the respondents.
6. It is seen that the appellants manufacture Pig Iron, Cement and also DI Pipes, which are all excisable and dutiable. The point at issue is whether the benefit of notification 67/95 is available to the Cement and Pig Iron manufactured by the respondents and used in the manufacture of DI Pipes. It is seen that these DI Pipes are partly cleared on payment of appropriate duty and partly without payment of duty by availing the benefit of exemption under notification 06/2002 CE dated 1.3.2002 as amended and notification No. 10/97 CE dated 1.3.97 as amended. The benefit of notification 67/95 is for intermediary products which are used captively consumed in the manufacture of dutiable final product. If the final products are not dutiable or exempted, then the said exemption would not be available for the goods captively consumed.
But then there are certain exemptions made out in the notification itself. The Commissioner in the Adjudication has found that in the present case the respondents are covered by the case in (VI) of the proviso to the notification. For better understanding we are reproducing the entire notification.
In exercise of the powers conferred by Sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944) read with Sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), (herein after referred to as the said Special Importance Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts- (i) Capital goods as defined CENVAT Credit Rules, 2002 manufactured in a factory and used within the factory of production; (ii) Goods specified in column (1) of the Table hereto annexed (hereinafter referred to as "inputs") manufactured in a factory and used within the factory of production in or in relation to manufacture of final products specified in column (2) of the said Table; From the whole of the duty of excise leviable thereon which is specified in the Schedules to the Central Excise Tariff Act, 1985 (5 of 1986) or additional duty of excise leviable thereon which is specified in the First Schedule to the said Special Importance Act.
Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty, other than those goods which are cleared- (v) under notification No. 108/95-Central Excise, dated the 28^th August, 1995, or (vi) by a manufacturer of dutiable and exempted final products, after discharging the obligation prescribed in Rule 6 of the CENVAT Credit Rules, 2002.
All goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol.
All goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than matches.
6.1. On going through the notification it is seen that 67/95 notification gives exemption to certain specified goods, which are given in the table annexed to the notification manufactured in a factory and used within the factory of production in or in relation to manufacture of final product specified in column 2 of the table annexed to the notification. In the table annexed inputs are given in column 1 and the final products are given in the column 2 of the table. In a present case, the inputs are Pig Iron and Cement. They are definitely covered in column 1 of the table. The final product is DI Pipes, they are also covered in column 2 of the table. Therefore, both the inputs and final products are covered. Then what is the hitch? According the Revenue, the exemption cannot be given to Pig Iron and Cement, because, the final product DI Pipe is partly cleared without payment of duty by availing exemption notifications. Revenue has ignored the fact that when the respondent cleared the DI Pipes on the basis of exemption notification, they had also paid 10% / 8% of the sale value of the exempted goods in terms of Rule 6 of Cenvat Credit Rules for a part of the period and for the remaining period under dispute the respondent had kept separate accounts of inputs used in dutiable final products and exempted final products. In other words, the respondent had discharged the obligation prescribed in Rule 6 of Cenvat Credit Rules, 2002. In such cases, they would be covered by the notification in terms of exception to proviso in Para (vi). This point has been ignored by the Revenue while issuing the show cause notice. The Commissioner has recorded a clear finding that during the period from 8.4.2004 to 30.06.2004, the assessee had followed the procedure prescribed under Clause (b) of Sub-rule (3) of Rule 6 of the Cenvat Credit Rules, and has paid the applicable amount of 8% / 10% and of the value of the exempted goods. From 1.7.2004 onwards, the respondent had maintained separate inventory and accounts of the inputs used for dutiable DI Pipes and exempted DI Pipes. In such circumstances, the Commissioner has found that the appellant is rightly entitled for the benefit of the notification. According to the Revenue, the respondent cannot get double benefit, either they should pay duty on the inputs and clear the final product on the basis of exemption notification or if they want to avail the exemption for the Cement and Pig Iron, they should not avail any exemption for the final products.
7. On a very careful consideration of the issue, we find that the Commissioner has correctly applied the law to the facts of the case. On a careful reading of the notification, we find that the respondent is clearly covered by the notification. No doubt, the captive consumption notification is not applicable when the final products are exempted.
However, when the final products are partly cleared on payment of duty and partly exempted when the respondent pays 10% on the sale value of the goods or maintain separate inventory and accounts of inputs used for exempted and dutiable goods, it is as though the respondents discharge the duty liability on the entire goods cleared including the exempted goods. Because, by following Rule 6 they had paid 10% of the sale value of the exempted goods. However, when they maintain the separate inventory and accounts of the inputs used for dutiable DI Pipes and exempted DI Pipes they discharge the obligations under Rule 6. In those cases where they maintain separate accounts, they are not taking any credit of input. Here, the original inputs are the inputs for the manufacture of Pig Iron and Cement. On these inputs, the appellants tax Cenvat Credit and manufacture Pig Iron and Cement. The Pig Iron and Cement are further inputs used for the manufacture of DI Pipes. There is no question of availing any credit on Pig Iron and Cement used for DI Pipes as exemption under notification 67/95 is amended. In any case, since the respondents discharge the liability under Rule 6 of the Cenvat Credit Rules, in respect of DI Pipes cleared on exemption, they would be entitled for the benefit of notification 67/95. Hence, we do not find any infirmity in the order and Revenue's appeal does not have any merit. Therefore, we dismiss the same.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)