Honble Mr. Ramesh Nair, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of Hearing : 04.02.2019 Date of Decision : 01.03.2019 Final Order No. A/10403 / 2019 Per : Ramesh Nair The appellant are engaged in the manufacture of cement and clinker and the clinker is in turn captively used in the manufacture of cement. The appellant was availing exemption Notification No. 67/95-CE dated 16.03.1995 in respect of clinker captively used in the manufacture of cement. A part of cement manufactured was cleared with duty exemption for earthquake under Notification No. 02/2001-CE dated 27.01.2001 and Notification No. 16/2001-CE dated 26.03.2001. The department issued Appeal No. E/424/2010 -DB show cause notice dated 03.04.2002 for the period March 2001 to May 2001 demanding duty of Rs. 2,05,200/- on the part the clinker used in the portion of cement which was cleared with duty exemption for earthquake relief. Prior to 27.05.2002, the appellant was reversing 8% value of exempted cement cleared for earthquake relief and from 27.05.2002 onwards, instead of reversing 8%, the appellant started maintaining separate accounts in respect of the inputs on which Cenvat credit was not taken namely, HDPE Bags. However, separate accounts for fuel was not maintained as per Rule 6(2) of Cenvat Credit Rules which requires maintenance of separate accounts except for the inputs intended to be used as fuel. The department issued second show cause notice dated 25.04.2003 for the period 27.05.2002 to 25.07.2002 demanding duty of Rs. 5,70,200/- for the part of clinker which is used in the course of cement cleared at duty exemption for earthquake relief. The notice also sought to deny Cenvat credit of Rs. 1,14,516/- on the portion of the fuel used in the manufacture of exempted cement. The 3rd show cause notice dated 05.09.2003 was issued for the period 01.08.2002 to 31.03.2003 demanding duty of Rs. 30,44,123/- on the part of clinker which was used in portion of cement cleared duty free for earthquake relief. The notice also sought to deny Cenvat credit of Rs. 6,30,922/- of the portion of fuel used in the manufacture of exempted cement. The Adjudicating Authority i.e. Additional Commissioner has confirmed the show cause notice vide order- Appeal No. E/424/2010 -DB in-original dated 31.03.2009 and imposed penalties equal to the duty amounts. The Commissioner (Appeals) by OIA dated 28.12.2009 rejected the appeal except for setting aside the penalties equal to the Cenvat credit on the fuel, therefore the present appeal.
2. Shri J.C. Patel, Ld. Counsel appearing on behalf of the appellant submits that even though clinker is used captively but since the final product i.e. cement which contained the clinker, is also exempted under Notification No. 02/2001-CE. In his support, ld. Counsel relied upon the judgment of this Tribunal in the case of Toyto Kirloskar Motor Limited vs. CCE 2009 (237) ELT 176 (Tri. Bang.) and Rajshree Cement vs. CCE 2003 (160) ELT 438 (Tri. Bang.). He submits that even though Notification No. 67/95-CE is not available, the clinker otherwise exempted under Notification No. 02/2001-CE itself. Without prejudice he submits that since the appellant was paying/ reversing 8% value of exempted cement, the appellant was entitled for the exemption under Notification No. 67/95-CE as held in Toyto Kirloskar Motor Limited (supra) and in Bhushan Steel & Strips Limited vs. CCE 2015 (326) ELT 729 (Tri. Del.). As regards the Notification No. 16/2001-CE, he submits that in view of clause (vi) of the proviso in Notification No. 67/95-CE, exemption cannot be denied to clinker used in manufacturing the cement cleared under Notification No. 16/2001- CE. He submits that even though the cement was cleared under exemption Appeal No. E/424/2010 -DB under Notification 16/2001-CE dated 26.02.2001, in terms of clause (vi) of proviso to Notification No. 67/95-CE, since the appellant have discharged the obligation under Rule 6 of Cenvat Credit Rules, the appellant is entitled for exemption in respect of clinker under Notification No. 67/95-CE. He submits that in view of the facts of the case, there is no malafide intention of the appellant and therefore, penalties imposed by the Adjudicating Authority and upheld by the Commissioner (Appeals) is not legal and proper.
3. Shri L. Patra, Ld. Assistant Commissioner (AR) appearing on behalf of the Revenue reiterated the findings of the impugned order. He further submits that the appellant have cleared the final product under the exemption Notification No. 2/2001-CE and 16/2001, therefore, the intermediate product i.e. clinker is not eligible for exemption under 67/95-
4. We have carefully considered the submissions made by both sides and perused the record. We find that the entire controversy arose because of the reason that appellant have availed Cenvat credit in respect of inputs namely fuel. As per the Revenue, the appellant have not discharged the obligation as per Rule 6, accordingly they are not eligible for exemption Appeal No. E/424/2010 -DB under Notification No. 2/2001-CE and 16/2001-CE. We find that Notification No. 2/2001-CE reads as under :- Donations for relief and rehabilitation of the people affected by the Earthquake in the State of Gujarat Exemption from excise duty 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 the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all goods falling under the First and Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) donated or purchased out of cash donations, for the relief and rehabilitation of the people affected by the earthquake in the State of Gujarat from the whole of the duty of excise leviable thereon under both the above mentioned Acts, subject to the following conditions, namely
(i) that it is certified by the manufacturer of such goods on the relevant clearance documents that the goods are intended to be donated for the relief and rehabilitation of the people affected by the earthquake in the said State without making any charge therefore;
(ii) that the goods are sent directly from the factory of the manufacturer or warehouse to the Central Government, the Government of Gujarat; or as the case may be, the relief agencies of the Central Government, the Government of Gujarat including the relief agencies duly approved by the Government; and
(iii) that the manufacturer produces before the jurisdictional Deputy Commissioner or the Assistant Commissioner of Central Excise, as the case may be, within three months from the date of removal of the goods or within such extended period as the said officer may allow, a certificate from the District Magistrate of the affected area in the State of Gujarat that the said goods have been donated for use for the aforesaid purpose.
2. This notification shall remain in force up to and inclusive of the 31st day of July, 2001. From the reading of the above notification, it is clear that the goods supplied as donation for earthquake relief are exempted. In the appellants case, even though the clinker was not supplied but though the cement supplied contains the clinker and therefore, it is clear that clinker is deemed Appeal No. E/424/2010 -DB to have been supplied for earthquake relief. Therefore, the appellant are entitled for the exemption under Notification No. 2/2001-CE. In such case, even if appellant is not entitled for Notification No. 67/95-CE the exemption otherwise is available under Notification No. 2/2001-CE. For the subsequent period, as regards the claim of the appellant for Notification No. 16/2001-CE, we find that only lapse is that the appellant have availed and retained Cenvat credit on fuel. Though the appellant have discharged obligation prescribed under Rule 6 (2) of Cenvat Credit Rules, 2004 but by availing Cenvat credit on fuel, the obligation under sub Rule 1 of Rule 6 of Cenvat Credit Rules, 2004 has not been discharged.
5. Shri J.C. Patel, Ld. Counsel during arguments submitted that they are ready to reverse the Cenvat credit on fuel if required therefore, they are entitled for the Notification No. 16/2001-CE. We find that the appellant under circumstances not entitled for Cenvat credit in respect of the value attributed to the exempted goods. In terms of Rule 6(1) of Cenvat Credit Rules, 2004, if the appellant have reversed full Cenvat credit attributed to the goods cleared under Notification No. 16/2001-CE, the appellant become eligible for exemption. Since, the ld. Counsel has agreed to reverse the credit, we direct the appellant as well as the Adjudicating Authority to ensure the reversal of Cenvat credit on fuel attributed to the goods cleared under exemption Notification No. 2/2001-CE and 16/2001-CE, accordingly, Appeal No. E/424/2010 -DB the appellant shall be eligible for exemption under both the notifications. With our above observations, we set-aside the impugned order and allow the appeal by way of remand to the Adjudicating Authority (Order pronounced in the open court on 01.03.2019) Raju Member (Technical) Ramesh Nair Member (Judicial)