Order date – 28 November 2022

Facts –

• The Appellant, Mangalam Drugs & Organics Ltd, are engaged in the manufacture of dutiable as well as exempted goods and availing Cenvat credit on input and input services.
• As regards the credit of input service, the appellant have availed common inputs service which were used in dutiable and exempted goods however, at the end of the month they have reversed the proportionate credit. Thus, the appellant’s claim is that they have not availed Cenvat credit on input and input service attributed to the exempted goods.
• The department has demanded 5% / 10% of the value of exempted goods which amounted to Rs. 1,98,42,913/- in terms of Rule 6(3) of Cenvat Credit Rules, 2004 along with interest and penalty under Section 11AC of Central Excise Act, 1944 on the ground that the appellant not established their claim.

Issue –

• Whether the appellant is liable to pay 5% / 10% in terms of Rule 6(3) of Cenvat Credit Rules, 2004?

Order –

• The Tribunal observed that appellant have been maintaining separate record for cenvatable and non-cenvatable inputs in RG-23 Part-I and Form-IV register respectively. 
• The Adjudicating Authority has not made any effort to check the claim of the appellant that the credit in respect of inputs used in exempted goods were not availed and reversal of credit made in respect of input service attributed to the exempted goods.
• It is clear that the appellant have not taken or reversed the Cenvat credit in respect of input and input service from the chart submitted by the appellant. In case of demand under Rule 6(3) for the amount 5%/ 10%, is made the appellant became entitle to take credit in respect of all inputs and input service irrespective of the use of the same either in the dutiable or exempted goods. 
• Even though the Adjudicating Authority has some doubt about manner of maintenance of separate accounts but the fact remains that the appellant have not taken/ reversed Cenvat credit in respect of input and input service of Rs. 2,27,92,622/-. On this basis itself, without going into correctness of the separate accounts, the demand is not sustainable.
• Accordingly, the impugned order is set-aside and the appeals are allowed with consequential relief.