2014 (7) TMI 311 - AT - Central Excise

Cenvat Credit - Manufactures and clears Dutiable as well as Exempted goods - assessee does not avail credit on inputs, but avails credit on capital goods and input services; Commonly utilizes the input services for the manufacture and clearance of dutiable as well exempted goods. - Held that - In fact, the Department could have demanded the amount payable as per Rule 6(3) of CCR. However, they have chosen to demand only proportionate credit. Therefore the consideration also is limited to the question as to when input service tax credit has been taken, provisions of Rule 6 regarding the availability of credit was attracted or not. Rule 6(1) clearly denies CENVAT credit in respect of exempted products. In the absence of any specific provisions, the appellant is bound to reverse the credit taken Credit can be taken only if separate accounts are maintained in the case of inputs or input services which are used for dutiable and exempted goods. In this case, appellant has taken CENVAT credit on input services and therefore they were bound by law to maintain separate account or not to avail credit. In the absence of maintenance of separate accounts, the credit on input services was clearly not eligible. In fact, the Department could have demanded the amount payable as per Rule 6(3) of CCR. However, they have chosen to demand only proportionate credit. Therefore the consideration also is limited to the question as to when input service tax credit has been taken, provisions of Rule 6 regarding the availability of credit was attracted or not. Rule 6(1) clearly denies CENVAT credit in respect of exempted products. In the absence of any specific provisions, the appellant is bound to reverse the credit taken. Rule 6(5) services - Held that - At this stage, the learned counsel made another submission that there were services which are among the 17 services listed in Rule 6(5) and in respect of these services credit can be taken even if they are used in dutiable and exempted products. She submitted that the amount attributable to these services is ₹ 10, 361/-. - Contention of assessee is correct - therefore the payable amount to be demanded has to be reduced by this amount. Extended period of limitation - whether the similar matter was under consideration of the department earlier - Held that - , the earlier proceedings was relating to the issue as to whether the appellant was eligible for exemption even when credit of input service tax had been taken or not. The issue was not whether the appellant is required to reverse proportionate credit when the services are used in dutiable and exempted products. Therefore the fact that there was an earlier proceedings would not be of any help. - the claim that there was no suppression or misdeclaration cannot be considered. - When the appellant did not reverse the proportionate credit or pay the amount as prescribed under Rule 6(3) or did not implement the option exercised by themselves, there is a clear misdeclaration or suppression on their part - Decided partly in favour of assessee.

Issues:
1. Availing concessional rate of duty on Ceramic Glazed Tiles and Flat Bed Screens.
2. Compliance with conditions of Exemption Notifications.
3. Maintenance of separate accounts for dutiable and exempted goods.
4. Availing credit on input services without maintaining separate records.
5. Application of Rule 6 of Cenvat Credit Rules 2004.
6. Proportionate CENVAT credit availed on input services for exempted products.
7. Invocation of extended period for recovery of wrongly availed credit.

Analysis:

Issue 1: Availing concessional rate of duty
The assessee was found to be eligible for concessional rate of duty on Ceramic Glazed Tiles and Flat Bed Screens by fulfilling the conditions specified in the Exemption Notifications.

Issue 2: Compliance with Exemption Notifications
The audit observed that the assessee availed benefits under Exemption Notifications for both products. However, a discrepancy was noted regarding availing credit on Capital Goods and Input Services for Flat Bed Screens, which led to an objection raised by the Internal Audit Party.

Issue 3: Maintenance of separate accounts
Rule 6 of Cenvat Credit Rules 2004 mandates maintaining separate accounts for dutiable and exempted goods. The assessee was found to be availing credit on various input services without maintaining separate records, leading to non-compliance with the Rule.

Issue 4: Availing credit on input services
The assessee had availed credit on input services without maintaining separate accounts, which was considered ineligible. The assessee opted for a specific procedure under Rule 6(3)(ii) but failed to pay the required amount, resulting in a demand for recovery.

Issue 5: Application of Rule 6 of Cenvat Credit Rules 2004
Rule 6 requires adherence to specific conditions for availing credit on input services for exempted goods. The failure to maintain separate accounts led to the denial of proportionate CENVAT credit, as per the provisions of the Rule.

Issue 6: Proportionate CENVAT credit for exempted products
The demand for proportionate CENVAT credit availed on input services for exempted products was upheld, considering the non-compliance with Rule 6 and the absence of separate accounts for dutiable and exempted goods.

Issue 7: Invocation of extended period
The invocation of the extended period for recovery of wrongly availed credit was justified, as the assessee had not reversed the proportionate credit or paid the required amount as per Rule 6(3). The Tribunal rejected the appeal, except for reducing the payable amount by the credit attributable to specific services allowed under Rule 6(5).

In conclusion, the judgment upheld the demand for proportionate CENVAT credit availed on input services for exempted products due to non-compliance with Rule 6, despite the assessee's attempt to opt for a specific procedure. The invocation of the extended period was deemed justified, considering the failure to adhere to the prescribed rules and procedures.

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