R.SUDHAKAR,J. - (1.) This civil miscellaneous appeal, at the instance of the Revenue, raises the following substantial questions of law :- "(1) Whether on facts and in the circumstances of the case, the Tribunal is right in holding that the respondent is entitled to Cenvat credit on the inputs used exclusively in the manufacture of goods, which are exempted and which are cleared without payment of duty? (2) Whether the CESTAT is justified in holding that the assessee is entitled to take Cenvat credit on all inputs including inputs exclusively used in the manufacture of exempted final products contrary to the provisions of Rule 6(1) of Cenvat Credit Rules 2004? (3) Whether on facts and in the circumstances of the case, the CESTAT is right in applying the ratio of judgment in the case of Hetero Labs Ltd. v. Commissioner of Central Excise, Hyderabad - 2005 (192) E.L.T. 716 (Tri.-Bangalore) where the facts involved are entirely distinct and different from the facts of the instant case and when the said decision has not reached finality?"
(2.) The first respondent-assessee are engaged in the manufacture of gear motor assembly falling under chapter heading 85.01 of the Central Excise Tariff and they supply the said gear motor assembly to M/s. NEPC India Limited, Chennai, for being used in their wind mills. The gear motor assembly is manufactured by way of assembling 19 imported components. The first respondent is also manufacturing gear motor assembly for other general applications for usage by other customers and for such gear motor assemblies cleared for other customers, duty is paid. So far as the supply of gear assembly to M/s. NEPC India Limited, Chennai is concerned, the said manufactured and cleared goods are exempted from duty in terms of the Notification No. 3/2001, dated 1-3-2001 and Notification No. 6/2002, dated 1-3-2002 and that the wind operated electricity generator, its components and parts thereof are exempted as per Serial No. 13 of List 9 of the Notification from payment of duty. According to the department, the first respondent wrongly availed Cenvat credit on the inputs used in the manufacture of exempted goods and thereby Rule 6(1) of the Cenvat Credit Rules, 2004 has been violated. Therefore, based on the two show cause notices, namely, Notice No. 86/2005, dated 16-12-2005 in respect of the period 1-6-2001 to 29-11-2005 and Notice No. 46/2006, dated 17-11-2006 in respect of the period 30-11-2005 to 31-10-2006, duty was demanded under Rule 12/14 of the Cenvat Credit Rules, 2001/2002/2004 read with the proviso to sub-section (1) of Section 11A together with interest under Section 11AB and penalty under Section 11AC of the Central Excise Act and for penalty under the other provisions, which we are not concerned for the present.
(3.) The basic premise on which the notices were issued is that the assessee had contravened Rule 6(1) of the Cenvat Credit Rules, 2001/2002/2004. But the assessee claimed that they are eligible for availing the Cenvat credit in view of Rule 6(3)(b) of the Cenvat Credit Rules, 2004, as they had paid the amounts specified under the said rule at the time of clearance of the final product. However, the Commissioner of Central Excise upheld the department's plea with regard to wrongful availment of Cenvat credit, except for a sum of Rs. 37,725/- for the month of June, 2001 for which demand was dropped. The Commissioner of Central Excise was of the view that out of 19 inputs, 16 inputs were exclusively used in the manufacture of exempted goods and therefore in respect of 16 exclusive inputs, the assessee is not entitled to avail the Cenvat credit, as it is relatable to usage in the manufacture of exempted goods, and therefore Rule 6(1) should come into play and the Cenvat credit availed thereon should be reversed. The assessee's plea that they did not maintain separate accounts of inputs used in the manufacture of exempted goods and goods cleared on payment of duty and therefore the rule that is applicable to them will be Rule 6(3) and not Rule 6(1), did not find favour with the Commissioner of Central Excise and accordingly, the Commissioner of Central Excise, Chennai, passed the following order on 15-3-2007 :- "1. I confirm an amount of Rs. 88,21,936/- (Rupees eighty eight lakhs twenty one thousand nine hundred and thirty six only) out of Rs. 88,59,661/- and an amount of Rs. 1,19,128/- (Rupees one lakh nineteen thousand one hundred and twenty eight only) as Education Cess demanded vide show cause Notice No. 86/2005, dated 16-12-2005), being the undue credit availed during the period from 1-7-2001 to 29-11-2005 and I also confirm an amount of Rs. 34,31,162/- (Rupees thirty four lakhs thirty one thousand one hundred and sixty two) and an amount of Rs. 68,623/- (Rupees sixty eight thousand six hundred and twenty three only) as Education Cess, being the undue credit availed during the period from 30-11-2005 to 31-10-2006, issued vide this office file references of even no., under Rule 12 of Cenvat Credit Rules, 2001/2002 and Rule 14 of Cenvat Credit Rules read with proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944. 2. I order payment of appropriate interest on the above amount demanded, under Section 11AB of the Central Excise Act, 1944. 3. I impose a penalty of Rs. 1,24,40,849/- (Rupees one crore twenty four lakhs forty thousand eight hundred and forty nine only) under Section 11AC of the Central Excise Act, 1944 equivalent to duty demand confirmed in SI. No. 1 above.";