CESTAT: Exemption of Excise Duty can’t be denied for mere taking Credit of Duty paid on Inputs used in Manufacture of Goods

In a major relief to M/s Hamdard (Wakf) Laboratories, the Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that exemption of Excise Duty can’t be denied for mere taking credit of duty paid on inputs used in the manufacture of goods.

Facts of the case:-

The appellant manufactures edible preparations falling under Chapter 21, Unani medicines falling under Chapter 30 and Cosmetics and Toilet preparations falling under Chapter 33 of the First Schedule to the Central Excise Tariff Act, 19854. Some of these goods are dutiable and others are exempted from duty.

The appellant availed the benefit of Cenvat credit on the inputs used exclusively in the manufacture of dutiable goods and had not availed the benefit of Cenvat credit on inputs used in the manufacture of exempted goods. However, there was one common input, viz., furnace oil, which was used to generate steam which was captively consumed by the appellant to manufacture sugar syrup and extracts of herbs and flowers both of which were used in the manufacture of the final products. The quantity of furnace oil in stock at the beginning of every month, the quantity during the month and the closing balance were maintained in the computer system which showed how much furnace oil was used during each month. Since furnace oil is used to generate steam which was further used to manufacture final products, it was impractical for the appellant to maintain separate accounts of furnace oil or generate steam separately for the manufacture of dutiable goods and separately for the manufacture of exempted goods.

Interpretation of law:-

Based on the daily production of dutiable goods and exempted goods and actual consumption of furnace oil computed as per running time and usage of furnace oil every day, the appellant took credit of furnace oil only on that proportion of the furnace oil which went into the manufacture of dutiable goods.

The issue raised was whether Rule 6(2) required an assessee to purchase, stock, and use the common inputs separately for use in the manufacture of dutiable goods and exempted goods. A plain reading of Rule 6(2) does not show that the assessee has this responsibility. Rule 6(2) only requires separate accounts to be maintained for receipt, consumption, and inventory of inputs and input services used in the manufacture of dutiable final products and exempted products.

Conclusion:-

The coram headed by President Justice Dilip Gupta and Technical Member P.V. Subba Rao held that if an entry is made taking credit and another entry is made reversing the earlier entry, it is as good as not taking the credit at all. This is the only practical way of maintaining separate accounts for some industries such as the one of the appellant.

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