2016 (11) TMI 694 - AT - Central Excise

Refund claim - benefit of exemption Notification No.64/1995-CE, dt.16.03.1995 - the Appellants had availed CENVAT Credit of inputs which were used in or in relation to manufacture of dutiable as well as exempted goods; during the course of audit, it was alleged that since separate records were not maintained, they were required to pay 10% of the price of the exempted goods - the Appellants had availed CENVAT Credit of inputs which were used in or in relation to manufacture of dutiable as well as exempted goods; during the course of audit, it was alleged that since separate records were not maintained, they were required to pay 10% of the price of the exempted goods - whether the refund claim justified? Held that - the Appellants are eligible to reverse the proportionate CENVAT Credit attributable to exempted products in view of the specific provision contained under Rule 6(3)(a) of CENVAT Credit Rules 2004, which has not been considered by the authorities below. Also, in view of the retrospective amendment to the Rule 6 of CENVAT Credit Rules,2004 by virtue of Finance Act,2010 the Appellants are eligible to reverse proportionate CENVAT Credit on inputs attributable to exempted products. However, it is prudent to remand the matter to the Adjudicating authority to ascertain the proportionate credit attributable to exempted products and consider the refund application afresh in the light of above findings. Needless to mention that reasonable opportunity of hearing be granted to the Appellant - appeal allowed by way of remand.

Issues:
1. Applicability of Rule 6(3)(a) of CENVAT Credit Rules 2004.
2. Eligibility for refund claim under exemption Notification No.64/1995-CE.
3. Consideration of retrospective amendment to Rule 6 of CENVAT Credit Rules, 2004.

Analysis:
1. The appeal was filed against an order passed by the Commissioner (Appeals), C.Ex. & S.Tax, Ahmedabad, regarding the reversal of CENVAT Credit. The Appellants, engaged in manufacturing compressors and spares falling under Chapter 84 of the Central Excise Tariff Act, availed the benefit of exemption under Notification No.64/1995-CE. The dispute arose as the Appellants had availed CENVAT Credit on inputs used for both dutiable and exempted goods without maintaining separate records. Initially, they paid a sum of &8377; 4,61,000 based on an audit allegation. However, realizing their error, they filed a refund claim for &8377; 4,31,400, as per Rule 6(3)(a) of CENVAT Credit Rules 2004, which allows for the reversal of proportionate credit on inputs attributable to exempted products.

2. The Appellants argued that they were eligible to reverse a proportionate CENVAT Credit of &8377; 29,668 only, as per the specific provision of Rule 6(3)(a) of CENVAT Credit Rules 2004. They contended that the authorities below did not consider this argument while rejecting their refund claim. The Appellants also highlighted an amendment to the relevant rules in the Finance Act, 2010, which allowed for the retrospective reversal of proportionate credit on inputs attributable to exempted products. The Authorized Representative for the Revenue did not dispute these facts but suggested remanding the matter to ascertain the proportionate credit and refund eligibility.

3. The Tribunal found that the Appellants were indeed eligible to reverse the proportionate CENVAT Credit attributable to exempted products under Rule 6(3)(a) of CENVAT Credit Rules 2004, a provision overlooked by the lower authorities. Additionally, considering the retrospective amendment to Rule 6 of CENVAT Credit Rules in the Finance Act, 2010, the Tribunal concluded that the Appellants were entitled to reverse proportionate credit on inputs attributable to exempted products. Thus, the Tribunal allowed the appeal by remanding the matter to the Adjudicating authority for reassessment of the proportionate credit and reconsideration of the refund application, emphasizing the grant of a reasonable opportunity of hearing to the Appellants.

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