Order date – 10 November 2022

 Facts –

• The Appellant, M/s Chambal Fertilisers and Chemicals Limited, is engaged in the manufacture of fertilizers, namely urea and single super phosphate falling under Chapter 31 of the Schedule to the Central Excise Tariff Act, 1985. It was discharging central excise duty @ 1% on the urea as per Notification No. 12/2012-CE dated 17.03.2012. 
• The process of manufacture of urea involves manufacture of ammonia in the first place. The ammonia is then converted into urea. The appellant also sells ammonia as such on which it pays the appropriate central excise duty.
• The appellant availed cenvat credit on the inputs/input services used in manufacture of the ammonia and to the extent that ammonia was used to further manufacture urea which was cleared under the exemption notification, the appellant reversed the Cenvat credit as per Rule 6(3A) of the Cenvat Credit Rules, 2004.
• A show cause notice was issued that amount of reversal in terms of Rule 6(3A) has to be computed on the basis of the value of exempted final goods i.e., urea and not on the value of the exempted ammonia which is only an intermediate product in the manufacture of urea.
• Aggrieve appellant had fled an appeal

Issue – 

• Whether the reversal of cenvat credit made by the appellant as per Rule 6 (3A) is in order?

Order – 

• The Tribunal observed that if the appellant used 50% of the ammonia to make urea and had sold 50% of the ammonia as such, logically, the assessee should be eligible to only half the Cenvat credit. The remaining will go into inputs/input services used in manufacture of ammonia which were ultimately cleared as urea should not be available to the assesse.
• The Tribunal relied on the case of Chambal Fertilizers and Chemicals Ltd. and held that formula under Rule 6(3A) only requires the value of the exempted goods removed to be reckoned and not the value of the intermediate goods. The exempted good in this case is the urea. 
• Hence it is held that the appellant has correctly reversed proportionate amount of Cenvat credit reckoning the value of the urea removed instead of reckoning the intermediate product ammonia which has gone into the manufacture of such urea. 
• Appeal was allowed.