Revenue is in appeal against the judgment of the Customs, Excise and Service Tax Appellate Tribunal ('Tribunal' for short) dated 1.11.2006. At the time of admission of the appeal, this Court had framed the following substantial question of law : “Whether or not the provisions of Rule 6(1) read with Rule 6(2) of the CENVAT Credit Rules, 2001/2002 require reversal of proportionate amount of credit availed of on input i.e. Furnace oil used in the generation of steam, an exempted product, which as subsequently used in the manufacture of both dutiable and exempted goods ?”
2. Facts in brief are as follows:
2.1 Respondent manufacturer was visited with two show cause notices dated 22.4.04 and 24.11.04 calling upon the respondent to show cause why wrongly availed Cenvat credit of Rs.2,32,400/- and Rs.51,317/- be not recovered with interest and further why penalties should not be imposed. Such show cause notices were based on the premise that the respondent Baroda District Cooperative Milk Producers Union Ltd. had a unit called Sugam Dairy. Sugam Dairy was registered with the Excise Authorities. Since Sugam Dairy did not have the facility to store furnace oil nor have the facility of boiler for generation of steam in the premises, it was storing furnace oil in the storage tank in the Baroda Dairy which was adjacent to the factory premises of Sugam Dairy. Upon receipt of furnace oil, Sugam Dairy would prepare job work challan and send it to Baroda Dairy for generation of steam. It was noticed that such steam received by the Sugam Dairy was used for the manufacture of dutiable as well as non-dutiable products in the ratio of 30 :
70 per cent. The Department was of the opinion that such inputs used for manufacture of non-dutiable items, the assessee could not retain the Cenvat credit taken. Since such credit was taken and not reversed, the Department sought recovery of the same for which purpose, above noted show cause notices came to be issued.
2.2 The adjudicating authority passed a common order dated 30th December 2004 and dropped both the show cause notices. He was of the opinion that as per sub-rule (2) of rule 57C read with sub-rule (1) of rule 57CC, when the assessee uses fuel and also seeks exemption on the final product, such fuel used is not liable to reverse the Cenvat credit.
2.3 The Department filed appeal against the said order of the adjudicating authority. The Commissioner of Central Excise, vide his order dated 23.6.2005 allowed the Department's appeal. He was of the opinion that under the relevant rules, separate accounting of inputs for such fuel was not required to be maintained. However, such rules nowhere provided that the credit taken on such input, namely, fuel used for the manufacture of non-dutiable goods could also be retained. Aggrieved by such decision of the appellate authority, the respondent approached the Tribunal. The Tribunal by the impugned judgment, allowed the appeal and reversed the decision of the appellate authority. The Tribunal referred to and relied upon several decisions of the Tribunal and that of this Court in the case of Commissioner of Central Excise and Customs v. Gujarat Narmada Fertilizers Co. Ltd., 2006 (193) E.L.T. 136 to hold the question against the Department.
3. Learned counsel for the Department submitted that under the rules, the exemption given to the fuel used for manufacture of dutiable and non-dutiable final products was only with respect to maintenance of separate registers and not with respect to retention of Cenvat credit. He submitted that this issue was previously decided by this Court against the Department in the case of Gujarat Narmada Fertilizer (supra). However, such decision was carried in appeal by the Department before the Apex Court and the Apex Court in the case of Commissioner of C.Ex. v. Gujarat Narmada Fertilizers Co. Ltd., 2009 (240) E.L.T. 661 (S.C.) reversed the decision of this Court and ruled in favour of the Department. Our attention was drawn particularly to para 10 of the said decision.
4. On the other hand, learned counsel Shri H.D.Dave for the respondent submitted that the issue though is covered by the decision in the case of Gujarat Narmada Fertilizers Co. Ltd. (supra), there would be no question of penalty where the Commissioner has not made any reference to such aspects in his order and that in any case, the entire dispute was debatable and was covered in favour of the respondent by virtue of the decision of this Court, there was no question of malafide intention on the part of the respondent.
5. Having heard the learned counsel for the parties and having perused the documents on record, we are of the opinion that the entire issue is squarely covered by the decision of the Apex Court in the case of Gujarat Narmada Fertilizers Co. Ltd. (supra), in particular in para 10 of the decision, it was held and observed as under :
“10. In our view, sub-rule (1) is plenary. It restates a principle, namely, that CENVAT credit for duty paid on inputs used in the manufacture of exempted final products is not allowable. This principle is in-built in the very structure of the CENVAT scheme. Sub-rule (1), therefore, merely highlights that principle. Sub-rule (1) covers all inputs, including fuel, whereas sub- rule (2) refers to non-fuel-inputs. Sub-rule (2) covers a situation where common cenvatted inputs are used in or in relation to manufacture of dutiable final product and exempted final product but the fuel-input is excluded from that sub-rule. However, exclusion of fuel-input vis-a- vis non-fuel-input would still fall in sub-rule (1). As stated above, sub-rule (1) is plenary, hence, it cannot be said that because sub-rule (2) is inapplicable to fuel-input(s), CENVAT credit is automatically available to such inputs even if they are used in the manufacture of exempted goods. The cumulative reading of sub- rules (1) and (2) makes it abundantly clear that the circumstances specified in sub-rule (2), which inter alia requires separate accounting of inputs, are not applicable to the fuel-input(s). However, the said sub-rule (2) nowhere says that the legal effect of sub-rule (1) will stand terminated in respect of fuel-inputs which do not fall in sub-rule (2). In other words, the legal effect of sub-rule (1) has to be applied to all inputs including fuel-inputs, only exception being non-fuel-inputs, for which one has to maintain separate accounts or in its absence pay 8% /10% of thetotal price of the exempted final products. Therefore, sub-rule (1) shall apply in respect of goods used as "fuel" and on such application, the credit will not be permissible on such quantity of fuel which is used in the manufacture of exempted goods. In our view, the above aspect has not been properly appreciated by the Gujarat High Court in the above case of M/s. Gujarat Narmada Valley reported in (2006) 193 ELT 136 (supra).”
6. In view of such decision, no further discussion is necessary. We, therefore, answer the question in affirmative, i.e. against the respondent and in favour of the appellant Department.
7. Before closing, we may however, clarify one aspect of the matter. We may recall that the show cause notice proceedings were dropped by the adjudicating authority. The Commissioner in his appellate order dated 23.6.2005 though reversed such order, passed no further direction with respect to recovery of penalty. In the order itself, he had not discussed any aspect of the penal liability of the respondent or any of its officers. This coupled with the fact that the entire issue was highly debatable and at one stage was in fact decided in favour of the manufacturer by this Court, would convince us that there was no question of any penalty to be levied from the respondent. The Apex Court also in the judgment in the case of Gujarat Narmada Fertilizers Co. Ltd. (supra) had provided that looking to the nature of the rules, no penalty would be leviable. It was observed as under :
“13. It may be noted that litigation on interpretation of CENVAT Credit Rules has arisen on account of various conflicting decisions given by the various Benches of CESTAT, the reason being that the Rules have not been properly drafted. In the circumstances, we are of the view that in this batch of cases no penalty is leviable, however, in order to decide the amount of duty payable by each of the assessees, the matters are remitted to the Adjudicating Authority to decide the amount of duty payable without penalty on reversal of credit to the extent of the input being used in the manufacture of exempted final products/to the extent of the excess electricity being wheeled out to the Grid and to the Township.”
8. Subject to the above observations, the appeal is allowed. The impugned judgment of the Tribunal dated 1.11.2006 is set aside. The order of the Appellate Commissioner is restored. Appeal stands disposed of accordingly.
(Akil Kureshi, J.) (Harsha Devani, J.) (vjn)