Rakesh Kumar, Member (T) - (1.) THE facts leading to filing of this appeal are, in brief, as under: - - "1.1 M/s. Shree Baba Exports (hereinafter referred to as the appellant) are engaged in the manufacture of Menthol flakes classifiable under sub -heading No. 29061110, Menthol Crystals B.P/USP classifiable under sub -heading No. 30039021 and De -Mentholised Oil and essential oils derived from Dementholized classifiable under sub -heading No. 33012590 of the Tariff. These final products are manufactured from duty paid Crude Menthol in respect of which, cenvat credit was being taken. W.e.f. 1.3.2008, by exemption notification No. 4/08 -CE dated 1.3.2008, Menthol and Menthol Crystals became fully and unconditionally exempt from duty. In accordance with the provisions of Rule 6(1) of Cenvat Credit Rules, 2004, Cenvat Credit Rules shall not be available on such quantity of inputs which are used in the manufacture of exempted goods, except in the circumstances mentioned in Rule 6(2) ibid. In accordance with the provisions of Rule 6(2) of the Cenvat Credit Rules, 2004, when a manufacturer of excisable goods has used cenvat credit availed inputs or input services in or in relation to the manufacture of dutiable excisable goods as well as exempted excisable goods, he shall either maintain separate account and inventory of the inputs/input services used in or in relation to the manufacture of dutiable and exempted final products and take cenvat credit only in respect of the inputs/input services used in or in relation to the manufacture of dutiable final products or if he does not do so, he shall be required to pay an amount in respect of the clearances of exempted final products as per the provisions of Rule 6(3), which is either an amount equal to 5%/ 10% of the sale value of the exempted final products or an amount equal to the cenvat credit involved in respect of the inputs/input services used in or in relation to the manufacture of the exempted final product. Further, as per the provisions of Rule 11(3)(ii) of Cenvat Credit Rules, when a manufacturer is using cenvat credit of excise duty paid on the inputs used in or in relation to the manufacture of some final product and that final product has become exempted absolutely in terms of some exemption notification issued under Section 5A of the Central Excise Act, 1944, he shall be required to pay an amount equivalent to the cenvat credit, if any, taken by him in respect of the inputs received by him for manufacture of the said final product which are lying in stock or are in process or are contained in the final products lying in stock on the date of exemption and after deducting the said amount from the balance cenvat credit, if any, the balance amount of cenvat credit, if any still remaining, shall lapse and shall not be allowed to be utilized for payment of duty on any final products, whether cleared for home consumption or for export. 1.2 In this case, when out of the various final products being manufactured, Menthol Crystals (falling under sub -heading No. 30039021 and Menthol Flakes classifiable under sub -heading No. 29061100 become fully exempted from duty w.e.f. 1.3.2008, the department was of the view that the appellant would be required to pay an amount equal to the cenvat credit involved on the inputs lying in stock or in process or contained in the final product lying in stock as on 1.3.2008 and after debiting this much amount from the cenvat credit balance, if any, as on 1.3.2008, the remaining balance of cenvat credit shall lapse. Since in this case, the appellant did not reverse the cenvat credit of Rs. 20,59,814/ -, which was the cenvat credit in respect of the inputs in process as on 1.3.2008 and also the inputs contained in the final products as on 1.3.2008 lying in stock as on 1.3.2008, the department was of the view that that this cenvat credit which was not reversed and on the contrary, was utilized by them for payment of duty on the dutiable final products, would be recoverable from them. On this basis, a show cause notice dated 30.03.2009 was issued to the appellant for recovery of the above amount of cenvat credit along with interest thereon under Section 11AB of the Central Excise Act and for imposition of penalty on them under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. 1.3 The above show cause notice was adjudicated by the Addl. Commissioner vide order -in -original No. 45/Addl.Commr/M -II/2010 dated 30.03.2010 by which the Addl. Commissioner confirmed the above mentioned cenvat credit demand along with interest and imposed penalty of equal amount on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. In course of proceedings before the Addl. Commissioner, the appellant s plea that Rule 11(3) was not applicable to their case, as along with Menthol flakes and Menthol Crystal, which had become absolutely exempt from duty w.e.f. 1.3.2008, the appellant were also manufacturing DMO and various essential oils derived from DMO, which were dutiable, but this plea was not accepted. 1.4 On appeal being filed to the Commissioner (Appeals) against this order, the Commissioner (Appeals) vide order -in -appeal dated 30.08.2010 upheld the cenvat credit demand along with interest but set aside the penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 holding that penalty is not sustainable. 1.5 Against the above order of the Commissioner (Appeals), while the appellant have filed the appeal No. E/4032/2010 -EX(DB) challenging the confirmation of the cenvat credit demand, Revenue has filed appeal against part of the Commissioner (Appeals) s order setting aside the order of penalty."
(2.) HEARD both the sides. Shri S.K. Mathur, Advocate, ld. Counsel for the appellant, pleaded that since the appellant out of the same cenvat credit availed input crude menthol, manufactured dutiable final products as well as exempted final products, the provisions of Rule 11(3) of the Cenvat Credit Rules, 2004 would not be applicable, as Rule 11(3) applies only in those cases where cenvat credit availed inputs have been used in the manufacture of a final product, which has become fully exempted from duty, that the cenvat credit taken in respect of the inputs has been utilized for payment of duty on De -mentholised Oil (DMO) and essential oils derived from DMO like peppermint oil, Menthone, etc., that the finished goods manufactured have been exported out of India and, therefore, the provisions of sub -rule (1), (2) and (3) of Rule -6 would not be applicable, that notwithstanding the fact that the Menthol Crystals and Menthol flakes were fully exempt from duty w.e.f. 1.3.2008, since these products along with the other by -products obtained from DMO had been exported out of India, the appellant would not be required to reverse the credit and that in this regard, he relies upon the judgments of the Hon'ble Bombay High Court in the cases of Repro India Ltd. v. Union of India reported in : 2009 (235) ELT 641 (Bombay) and Union of India v. Sharp Menthol India Ltd. reported in : 2011 (270) ELT 212 (Bombay), of Hon'ble Delhi High Court in the case of CCE v. Punjab Stainless Steel Ltd. reported in : 2009 (234) ELT 605 and of the Hon'ble Himachal Pradesh High Court in the case of CCE v. Drish Shoes reported in : 2010 (254) ELT 117 (H.P.). He, therefore, pleaded that since the cenvat credit demand itself is not sustainable, there is no question of imposition of penalty and, therefore, Revenue s appeal is without any merit.
(3.) MS . Sweta Bector, ld. Departmental Representative, while defending the impugned order upholding the cenvat credit demand pleaded that since the main final products - Menthol flakes and Menthol Crystals obtained from duty paid Menthol had become fully and unconditionally exempt from duty w.e.f. 1.3.2008, the provisions of Section 11(3) of Cenvat Credit Rules, 2004 would become applicable, as the appellant were availing input duty credit in respect of the inputs Crude Menthol used in the manufacture of Menthol flakes and Menthol Crystals, that since the DMO and fractions of DMO are only a by -product and the main products are Menthol and Menthol Crystal, the provisions of Rule 11(3) had become applicable w.e.f. 1.3.2008 when the main product had become fully exempt notwithstanding the fact that the by -products DMO/DMO fractions remained dutiable, that the word excisable in Rule 6(6) of the Cenvat Credit Rules, 2004 has to be interpreted as dutiable and since the main final products were no longer dutiable w.e.f. 1.3.2008, the provisions of Section 11(3) of the Rules would become applicable, that no evidence has been produced by the appellant in support of their plea that during the period of dispute, their finished products were being exported out of India and that in view of this, there is no infirmity in the impugned order upholding the cenvat credit demand. With regard to the Revenue s appeal, she pleaded that since the confirmation of cenvat credit demand has been upheld, penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act would be attracted and there is absolutely no justification for setting aside this penalty, as the appellant had suppressed the relevant information from the department.;