2019 (8) TMI 1874 - AT - Central Excise

CENVAT Credit - use of input services in common for manufacture of both exempted as well as dutiable goods - not maintaining separate accounts in respect of the input services used - applicability of Rule 6(3) of CENVAT Credit Rules 2004 - reversal of entire amount proportionate credit along with interest due even prior to issuance of show cause notice - HELD THAT - Courts and Tribunals have time and again while interpreting the scope of Rule 6 of CENVAT Credit Rules 2004 concluded to state that in so circumstances the said rule should be used as a measure to extract illegal amounts from the assessee. The scope of Rule 6 is limited to the extent that assessee do not get the undue benefit by availing the CENVAT Credits in respect of the exempted goods manufactured by him or the exempted services provided by him. Taking note of the fact that appellants had reversed the entire amount proportionate credit along with interest due in respect in respect of the period 01.04.2008 to 31.12.2010 (Rs 1, 22, 98, 068/ Rs 17, 49, 730/-) even prior to issuance of show cause notice there are no merits in the demands made post 1st April 2008 and the same is set aside. For the period prior to 1st April 2008 it is found that as per the law as it existed during the relevant period appellant was required to pay 10% of the value of exempted goods if he was not in position to maintain separate account in respect of the inputs/ input services used for manufacturing both exempted and dutiable goods. Interpreting the erstwhile rule 57CC of Central Excise Rules 1944 Hon ble Supreme Court has in case of UNION OF INDIA OTHERS VERSUS M/S. HINDUSTAN ZINC LTD. 2014 (5) TMI 253 - SUPREME COURT held Rule 57CC requires an assessee to maintain separate records for inputs which are used in the manufacture of two or more final products one of which is dutiable and the other is non-dutiable. In that event Rule 57CC will apply. The benefit of proportionate reversal has been extended from retrospective effect in cases where common inputs/ input services were used for manufacture of dutiable and exempt products. In our view the intention behind the amendment made is quite obvious. The assessees have been allowed to proportionately reverse the credit attributable to inputs/ input services used for manufacture of exempted goods in cases where common inputs/ input services are used or manufacture of both dutiable and exempted goods - the case of appellants for the periods 2006-07 and 2007-08 is covered by the amendments made by way of insertion of sub-rule (7) in Rule 6 of the CENVAT Credit Rules 2002. Impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Applicability of Rule 6(3)(ii) of the CENVAT Credit Rules, 2004.
2. Demand for payment under Rule 6(3)(i) for the period post 01.04.2008.
3. Demand for payment for the period prior to 01.04.2008.
4. Interest and penalty imposition under Rule 14 of the CENVAT Credit Rules, 2004 and Section 11AB of the Central Excise Act, 1944.
5. Bar of limitation in raising the demand.

Issue-wise Detailed Analysis:

1. Applicability of Rule 6(3)(ii) of the CENVAT Credit Rules, 2004:
The appellants argued that they had exercised the option under Rule 6(3)(ii) vide letters dated 10.04.2008, 06.04.2009, and 08.04.2010. They maintained separate accounts for inputs but did not do so for input services. The Tribunal noted that Rule 6 of the CENVAT Credit Rules, 2004, provides three options for manufacturers using common inputs/services for exempted and dutiable goods: maintaining separate accounts, reversing proportionate credit, or paying a specified percentage of the value of exempted goods. The appellants opted for reversing proportionate credit and had complied with this by reversing the required credit along with interest before the issuance of the show cause notice.

2. Demand for payment under Rule 6(3)(i) for the period post 01.04.2008:
The Tribunal referred to the case of Mercedes Benz vs. Commissioner of Central Excise Pune-II, which held that the assessee cannot be forced to pay a fixed percentage of the value of exempted goods if they have opted to reverse proportionate credit. The Tribunal found that the appellants had reversed the proportionate credit for the period 01.04.2008 to 31.12.2010 and paid the interest due. Therefore, the demand made under Rule 6(3)(i) for this period was set aside.

3. Demand for payment for the period prior to 01.04.2008:
For the period before 01.04.2008, the Tribunal noted that Rule 6(7) was inserted retrospectively by the Finance Act, 2010, allowing proportionate reversal of credit for common inputs/input services used in the manufacture of exempted goods. The Tribunal disagreed with the revenue's argument that this amendment was only applicable to disputes pending as of the date of the President's assent. The Tribunal concluded that the appellants' case for the periods 2006-07 and 2007-08 was covered by the retrospective amendment, and the demand for this period was also set aside.

4. Interest and penalty imposition under Rule 14 of the CENVAT Credit Rules, 2004 and Section 11AB of the Central Excise Act, 1944:
The Tribunal found that the appellants had reversed the proportionate credit and paid the interest due for the entire disputed period. The imposition of penalties and additional interest was deemed unnecessary as the appellants had complied with the requirements of Rule 6(3A).

5. Bar of limitation in raising the demand:
The appellants contended that the demand was barred by limitation as the department was aware of the exempted clearances. The Tribunal agreed, noting that the appellants had regularly filed returns and intimated the department about their clearances and credit reversals. The extended period of limitation was not applicable as there was no intention to evade duty.

Conclusion:
The Tribunal allowed the appeal, setting aside the demands and penalties imposed by the Commissioner. The appellants' compliance with the proportionate credit reversal and payment of interest was acknowledged, and the retrospective amendment by the Finance Act, 2010, was applied to their case. The miscellaneous application for extension of stay was dismissed as infructuous.