RAMJEET LOHRA Vs. THE STATE OF JHARKHAND

JUDGEMENT

(1.) This civil miscellaneous appeal, at the instance of the Revenue, raises the following substantial questions of law :-

(2.) The first respondent-assessee are engaged in the manufacture of gear motor assembly falling under chapter heading 85.01 of the Central Excise Tariff and they supply the said gear motor assembly to M/s. NEPC India Limited, Chennai, for being used in their wind mills. The gear motor assembly is manufactured by way of assembling 19 imported components. The first respondent is also manufacturing gear motor assembly for other general applications for usage by other customers and for such gear motor assemblies cleared for other customers, duty is paid. So far as the supply of gear assembly to M/s. NEPC India Limited, Chennai is concerned, the said manufactured and cleared goods are exempted from duty in terms of the Notification No. 3/2001, dated 1-3-2001 and Notification No. 6/2002, dated 1-3-2002 and that the wind operated electricity generator, its components and parts thereof are exempted as per Serial No. 13 of List 9 of the Notification from payment of duty. According to the department, the first respondent wrongly availed Cenvat credit on the inputs used in the manufacture of exempted goods and thereby Rule 6(1) of the Cenvat Credit Rules, 2004 has been violated. Therefore, based on the two show cause notices, namely, Notice No. 86/2005, dated 16-12-2005 in respect of the period 1-6-2001 to 29-11-2005 and Notice No. 46/2006, dated 17-11-2006 in respect of the period 30-11-2005 to 31-10-2006, duty was demanded under Rule 12/14 of the Cenvat Credit Rules, 2001/2002/2004 read with the proviso to sub-section (1) of Section 11A together with interest under Section 11AB and penalty under Section 11AC of the Central Excise Act and for penalty under the other provisions, which we are not concerned for the present.

(3.) The basic premise on which the notices were issued is that the assessee had contravened Rule 6(1) of the Cenvat Credit Rules, 2001/2002/2004. But the assessee claimed that they are eligible for availing the Cenvat credit in view of Rule 6(3)(b) of the Cenvat Credit Rules, 2004, as they had paid the amounts specified under the said rule at the time of clearance of the final product. However, the Commissioner of Central Excise upheld the department's plea with regard to wrongful availment of Cenvat credit, except for a sum of Rs. 37,725/- for the month of June, 2001 for which demand was dropped. The Commissioner of Central Excise was of the view that out of 19 inputs, 16 inputs were exclusively used in the manufacture of exempted goods and therefore in respect of 16 exclusive inputs, the assessee is not entitled to avail the Cenvat credit, as it is relatable to usage in the manufacture of exempted goods, and therefore Rule 6(1) should come into play and the Cenvat credit availed thereon should be reversed. The assessee's plea that they did not maintain separate accounts of inputs used in the manufacture of exempted goods and goods cleared on payment of duty and therefore the rule that is applicable to them will be Rule 6(3) and not Rule 6(1), did not find favour with the Commissioner of Central Excise and accordingly, the Commissioner of Central Excise, Chennai, passed the following order on 15-3-2007 :-