2012 (8) TMI 208 - AT - Central Excise

Reversal of Cenvt Credit - Rule 6(3) - generation of waste - fine was resulted while manufacture of Sponge Iron Held that - There is nothing on record to suggest that outcome of manufacture is controllable to eliminate fine which obviously generate - Revenue not brought out that the appellant knowingly generated fine and also knowingly arranged its situation to attract Rule 6(3) of Cenvat Credit Rules, 2004 - Proportionality aspect not being dealt by Rule 6(3) of Cenvat Credit Rules, 2004 and that Rule being subject to certain conditions the appellant shall succeed in absence of a case made from that angle - appeal is allowed

Summary

Issues: Disallowance of Cenvat credit on input service based on the outcome of manufacture.

Analysis:
The main issue in this case was the disallowance of Cenvat credit on input service due to the outcome of the manufacturing process. The Department contended that since a fine was generated during the manufacture of Sponge Iron, a proportionate credit of service on transportation related to fine manufacture should be disallowed. However, the Tribunal noted that the definition of "input service" under Rule 2(1) of the Cenvat Credit Rules, 2004, along with Rule 6, did not provide for the consideration of proportionality or disproportionality in such cases. It was emphasized that unless the appellant's intention fell under Rule 6(3) of the Cenvat Credit Rules, 2004, which deals with certain conditions, the disallowance could not be justified.

The Tribunal highlighted that there was no evidence to suggest that the appellant deliberately generated the fine or arranged the situation to attract Rule 6(3) of the Cenvat Credit Rules, 2004. Since the proportionality aspect was not addressed by Rule 6(3) and the rule itself was subject to specific conditions, the Tribunal concluded that the appellant should succeed in the absence of a case made from that perspective. The judgment emphasized the importance of establishing a clear link between the manufacturing outcome, the intention of the appellant, and the specific provisions of the Cenvat Credit Rules to justify the disallowance of credit on input services.

Ultimately, the Tribunal allowed the appeal, indicating that the Department had not substantiated the disallowance of Cenvat credit on input service based on the outcome of the manufacturing process. The decision underscored the necessity of meeting the requirements set forth in the relevant rules and demonstrating a direct connection between the manufacturing activities and the eligibility for Cenvat credit on input services.