MURLI INDUSTRIES LTD. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE appellants were manufacturing and clearing both dutiable goods and exempted goods during the material period. They were using common inputs in the manufacture of these products. They availed CENVAT credit on these inputs, a part of which was used in the manufacture of exempted final products. On this ground, and on the further ground that the appellants were not maintaining separate accounts and inventory in respect of inputs used in the manufacture of the two categories of final products, the department demanded 10% of the price of the exempted goods cleared by them during the period December 2006 to April 2007. This demand was raised under Rule 6(3)(b) of the CENVAT Credit Rules, 2004. In adjudication of the show -cause notice, the Commissioner confirmed this demand amounting to over Rs. 2.5 lakhs against the party and imposed on them equal amount of penalty. It is submitted by the learned Counsel for the appellants today that the entire credit taken on the common inputs used in the manufacture of exempted final products was in fact reversed, albeit after clearance of the goods. In this factual scenario, it is submitted that the appellants are entitled to the benefit of case law. The learned Counsel has relied on a line of decisions including the Allahabad High Court's judgment in Hello Minerals Water (P) Ltd. v. UOI , wherein the Hon'ble High Court allowed reversal of input duty credit after clearance of the goods, for which the benefit of exemption notification was availed by the assessee. That notification had stipulated a condition that no input duty credit should be taken. We have also come across other decisions wherein the High Court's ruling in Hello Minerals case was followed. Learned JCDR has contested the appellants' case by citing a similar embargo on availment of input duty credit in Customs Notification 203/92 and by submitting that the breach of condition was seriously noted by the government and judicial authorities so much so that the government ultimately came out with an amnesty scheme. These arguments of the learned JCDR could better be considered at final hearing stage. For the present, we have found prima facie case for the appellants on the strength of a line of judicial authorities on the question whether subsequent reversal of CENVAT credit on input used in the manufacture of exempted final products would authorise the manufacturer to claim exemption from payment of 10% of the price of the exempted final products under Rule 6(3)(b) ibid. The judicial authorities are consistently in favour of the assessees in the relevant cases.

(2.) HAVING found prima facie case, we order waiver of pre -deposit and stay of recovery in respect of the demands adjudged against the appellants.