2016 (1) TMI 430 - AT - Central Excise

Availment of CENVAT Credit - Non maintenance of separate accounts - Held that - Appellant had availed Cenvat credit of service tax paid on common input services. We find from the records that the appellant had manufactured and cleared newsprint paper and Kraft paper. Appellant claimed exemption from payment of duty in respect of newsprint paper and discharged appropriate duty liability on the Kraft paper - worksheet attached to the show cause notice that 87% of the final products manufactured by the appellant are cleared availing exemption from payment of duty. It is the case of the appellant that they had initially reversed the Cenvat credit proportionate to the exempted goods cleared but subsequently reversed the entire Cenvat credit availed on common input services. In support of such a claim, our attention was drawn to the relevant documents. On perusal of such documents, we find it so. - As per the provisions of the Cenvat credit rules, more specifically Rule 6, we find that if a manufacturer proportionately reverses the Cenvat credit attributable to the clearances of exempted goods, it is considered as compliance of the provisions and need not be burdened with the demand of an amount equivalent to 5% or 10% of the value of exempted goods. In the case in hand, as the appellant has already reversed the entire Cenvat credit of service tax paid on the common input services, we find that further demanding any amount from him is not in consonance with the law. - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
1. Availment of Cenvat credit on common input services for manufacturing dutiable and exempted goods.
2. Requirement of maintaining separate accounts for utilisation of common input services.
3. Contention on reversal of Cenvat credit and imposition of penalties.

Analysis:
1. The appeal challenged the order concerning the appellant's availing of Cenvat credit on common input services used for manufacturing dutiable and exempted goods from April 2006 to March 2011. The revenue argued that due to the lack of separate accounts for such utilisation, the appellant should pay a certain percentage of the value of exempted goods. The adjudicating authority confirmed the demands and penalties after the appellant contested the show cause notice on merits and limitation.

2. The appellant contended that they had reversed the Cenvat credit proportionate to the exempted goods initially and later reversed the entire Cenvat credit of common input services, as per the law's provisions. The records showed that a significant portion of the final products were cleared under duty exemption. The Tribunal noted that the appellant's action of reversing the entire Cenvat credit complied with Rule 6 of the Cenvat credit rules, thereby relieving them from further demands based on the value of exempted goods.

3. After considering both sides and the relevant documents, the Tribunal upheld the appellant's reversal of the Cenvat credit on common input services along with interest. The penalties imposed were set aside as the rules allowed for such reversals, and demanding additional amounts was deemed inconsistent with the law. Consequently, the demands related to the value of exempted clearances, interest liability, and penalties were set aside. The appeal was disposed of accordingly.