2011 (1) TMI 708 - AT - Service Tax

Cenvat credit - Input services used in the manufacture of dutiable and exempted final products - did not maintain separate accounts as envisaged in Rule 6 (2) of the Cenvat Credit Rules, 2002 - the assessee had already discharged the liability in terms of the Rule 6 provisions enacted in the Finance Act, 2010 within six months of 8.5.2010 when the President accorded assent to the Finance Act, 2010 - It is submitted that the application filed by the assessee for discharging their liability in terms of the above provisions stands rejected by the jurisdictional Commissioner owing to the pendency of the instant appeal before the Tribunal - In the circumstances, we remand the dispute to the Commissioner to re-determine the liability of the assessee in accordance with law.

Issues:
1. Credit of Service Tax on input services for dutiable and exempted final products.
2. Non-maintenance of separate accounts as per Rule 6 (2) of Cenvat Credit Rules, 2002.
3. Demand of 10% of the value of exempted final products.
4. Imposition of penalties under Rule 25 of Central Excise Rules, 2002 and Rule 15 (3) of Cenvat Credit Rules, 2004.
5. Amendment in Cenvat Credit Rule 6 by Finance Act, 2010.
6. Discharge of liability for credit on common inputs or input services used in exempted final products.
7. Rejection of application for discharging liability.
8. Remand of the dispute to the Commissioner for redetermination of liability.

Analysis:
1. The appeal involved a case where M/s. Bharat Heavy Electricals Limited (BHEL) took credit of Service Tax on various input services used in the manufacture of both dutiable and exempted final products without maintaining separate accounts as required by Rule 6 (2) of the Cenvat Credit Rules, 2002. The Adjudicating Authority demanded 10% of the value of exempted final products cleared by the assessee, along with penalties under Rule 25 of Central Excise Rules, 2002 and Rule 15 (3) of Cenvat Credit Rules, 2004.

2. During the hearing, the appellant argued that an amendment in Cenvat Credit Rule 6 by the Finance Act, 2010 allowed for the discharge of liability related to credit on common inputs or input services used in exempted final products. The appellant claimed to have already discharged the liability in accordance with the amended provisions but faced rejection by the jurisdictional Commissioner due to the pending appeal before the Tribunal.

3. The Tribunal considered the submissions and found that the impugned liability could be discharged by the appellant as per the provisions of the Finance Act, 2010. The Tribunal remanded the dispute to the Commissioner for re-determination of the liability in accordance with the law. Consequently, the impugned order demanding payment and imposing penalties was set aside, and the appeal was allowed by way of remand.

4. The decision highlighted the retrospective effect of the amendment in Cenvat Credit Rule 6 and the necessity for the jurisdictional Commissioner to accept the payment in line with statutory procedures. The Tribunal's ruling focused on ensuring compliance with the amended provisions and providing the appellant with the opportunity to discharge the liability as per the law, ultimately leading to the remand of the dispute for further assessment by the Commissioner.

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