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2013 (8) TMI 463 - AT - Central ExciseRule 6(3) of Cenvat Credit Rules, 2004 - Appellant did not maintain separate accounts for the input services used in or in relation to the manufacture of product dutiable as well as exempted products - Two options were available to them, i.e., either to pay 5%/10% of value of the exempted goods or pay an amount equal to the credit attributable to the input services used in or in relation to manufacture of exempted goods subject to the provisions of Sub-rule (3A) When mistake was pointed to the appellant of taking full credit of the input services, he reversed not only the credit taken on input services used in the manufacture of exempted goods but also the credit taken on input services used in the manufacture of dutiable goods. In other words, the appellant reversed the entire credit taken along with interest thereon Held that - Rule 6(3) (i) will not have any application, when a credit is taken wrongly and the same is reversed along with interest as it tantamount to non-taking of the credit, relying upon the judgments in the case Hello Minerals Water (P) Ltd 2004 (7) TMI 98 - HIGH COURT OF JUDICATURE AT ALLAHABAD , wherein it is held that reversal of Modvat credit amount to non-taking of credit on the input and even if such reversal was done after the clearance of the goods the said action amounts to non-availment of credit - In view of this decision along with various other decisions s.a. in the case of Chandrapur Magnet Wires (P) Ltd. 1995 (12) TMI 72 - SUPREME COURT OF INDIA , the reversal of credit by the appellant on the entire service tax taken along with interest thereon both in respect of dutiable goods as well as exempted goods amounts to non-availing of credit and, therefore, the provisions of Rule 6(3)(i) are not attracted and the confirmation of demand by the adjudicating authority directing the appellant to pay an amount at the rate of 5%/10% of the value of the exempted goods is not sustainable in law. Consequently, the imposition of penalties on the appellant and appellant firm and its manager are also not sustainable in law and accordingly, they are set aside Decided in favor of Assessee. Penalty under Rule 15(3) of Cenvat Credit Rules, 2004 Held that - Appellant has initially availed credit and only on pointing out by the department they have reversed the credit and, therefore the appellant is liable to penalty under Rule 15(3) of the Cenvat Credit Rules 2004 for contravention of the provisions of Cenvat Credit Rules. The maximum penalty imposable under he said Rule is ₹ 2000/- and accordingly the appellant is liable to pay penalty of ₹ 2000/-.
Issues Involved:
1. Applicability of Rule 6(2) and Rule 6(3) of CENVAT Credit Rules, 2004. 2. Reversal of CENVAT credit and its implications. 3. Imposition of penalties under Rule 15/15A of CENVAT Credit Rules, 2004. Issue-wise Detailed Analysis: 1. Applicability of Rule 6(2) and Rule 6(3) of CENVAT Credit Rules, 2004: The appellant, a manufacturer of material handling equipment, was unaware of the exemption provided under Notification No.25/2008 and continued to pay excise duty on certain exempted products until they became aware of the exemption on 1.8.2008. They maintained separate accounts for inputs used in dutiable and exempted products but did not maintain separate accounts for common input services. According to Rule 6(2), separate accounts must be maintained for inputs and input services used in the manufacture of dutiable and exempted goods. If separate accounts are not maintained, Rule 6(3) provides two options: 1) pay an amount equal to 5%/10% of the value of exempted goods or 2) reverse the credit attributable to input services used for exempted goods, following the procedure under Rule 6(3A). 2. Reversal of CENVAT credit and its implications: Upon being informed by excise officers, the appellant reversed the entire credit taken on input services, including those used for dutiable products, along with interest. The appellant argued that this reversal amounted to non-taking of credit, citing precedents from the Hon'ble High Court of Allahabad, the Apex Court, and other judicial bodies which held that reversal of Modvat Credit amounts to non-taking of credit. The Tribunal agreed that the reversal of credit along with interest before the issuance of the show cause notice amounted to non-availment of credit. Therefore, the provisions of Rule 6(3)(i) were not applicable, and the demand for an amount equal to 5%/10% of the value of exempted goods was not sustainable. 3. Imposition of penalties under Rule 15/15A of CENVAT Credit Rules, 2004: The show cause notice sought recovery of Rs.1,64,30,455/- along with interest and proposed penalties under Rule 15/15A. The adjudicating authority confirmed the demand and imposed penalties on the appellant firm and its manager. However, the Tribunal found that since the appellant reversed the entire credit along with interest, the imposition of penalties under Rule 15/15A was not justified. The Tribunal set aside the penalties but imposed a nominal penalty of Rs.2000/- under Rule 15(3) for contravention of CENVAT Credit Rules. Conclusion: The Tribunal concluded that the reversal of credit by the appellant amounted to non-availment of credit, making the demand under Rule 6(3)(i) unsustainable. Consequently, the penalties imposed on the appellant firm and its manager were set aside, except for a nominal penalty of Rs.2000/- under Rule 15(3). The appeal was disposed of in these terms.
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