The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed excise duty demand on ‘Tapioca Thippy’ on the ground of reversal of proportionate credit before the issuance of show cause notice (SCN).
It was noted by the department that the appellant had cleared Tapioca Native Starch without payment of duty in terms of Notification No.3/2006-CE dt. 1.3.2006 for the period upto February 2010. The appellant also cleared Modified Starch which is a dutiable product for home consumption, for export and to EOU and SEZ.
The appellant, M/s.Spac Taopica Products (India) Ltd cleared the residue product “Thippy” which arises in the course of manufacture of Tapioca Starch falling under chapter 23031000 to various customers for some consideration under proper invoices for being used in production of animal/cattle feed. The tariff rate for ‘Thippy’ is Nil.
The enquiries revealed that the appellant is using common inputs (chemicals) for manufacture of dutiable and exempted products of Tapioca Starch and they have not maintained separate accounts for the input used in the manufacture of both dutiable and exempted products. The appellant cannot avail cenvat credit in respect of inputs used in exempted final goods. The appellant had not paid any amount equivalent to 5% / 10% / 6% of value of the exempted products in terms of Rule 6 (3) (i) of Cenvat Credit Rules, 2004.
The counsel for the appellant argued that the department cannot unilaterally impose a condition of paying an amount of 5% /10% /6% on the value of exempted clearances when the appellant has an option to reverse the proportionate credit.
The counsel relied in the case of Tiara Advertizing vs Union of India, wherein the High Court of Telangana held that Rule 6 (3) does not contemplate that the service tax authorities can choose one of the options on behalf of the service provider.
It was strongly argued by the Authorized Representative that the appellant had not filed the declaration as required under Rule 6 (3A) opting for reversal of proportionate credit attributable to exempted goods. Therefore, the appellant cannot contend that they are not liable to pay the amount of 5% / 10% / 6% of value of the exempted goods.
A Two-Member Bench comprising CS Sulekha Beevi, Judicial Member and Vasa Seshagiri Rao, Technical Member observed that “In the present case the appellant has reversed the proportionate credit before the SCN. There is no evidence put forward by the department to establish that there was suppression of facts with intent to evade payment of duty. For this reason, we find that the appellant succeeds on the ground of limitation also.”
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