2017 (2) TMI 199 - AT - Central Excise

Reversal of CENVAT credit - Rule 6 of Cenvat Credit Rules, 2002 - appellant cleared various consignments, availing exemption under N/N. 6/2002-CE dated 1-3-2002, At the time of clearance of the goods they have reversed the Cenvat credit attributed to the input used in the manufacture of exempted goods - whether the demand on the ground that appellant was suppose to pay 8% of the value of the exempted goods in terms of Rule 6 of CCR, 2002, justified? Held that - demand is barred by limitation as the show cause notice was issued after one year. I also observed that since the appellant had been reversing the credit at the time of clearance of the goods on pro rata basis no further demand under Rule 6 can be made - Hon ble Supreme Court in case of Commissioner of C. Ex. Mumbai-I Bombay Dying and Manufacturing Co. Ltd 2007 (8) TMI 2 - Supreme Court held that in case of reversal of credit even if made after clearance of the goods before utilization of the credit i.e. sufficient requirement. The appellant was not required to pay 8% of the value of the exempted goods - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Demand for payment of 8% of the value of exempted goods under Rule 6 of Cenvat Credit Rules, 2002.
2. Time bar for the demand due to clearance under exemption with CT-2 certificate.
3. Consideration of reversal of credit on pro-rata basis during clearances.

Analysis:

Issue 1:
The appellant cleared consignments under exemption Notification No. 6/2002-CE by reversing Cenvat credit for input used in manufacturing exempted goods. The department demanded payment of 8% of the value of exempted goods under Rule 6 of Cenvat Credit Rules, 2002. The demand was confirmed by the adjudicating authority and upheld by the Ld. Commissioner(Appeals).

Issue 2:
The appellant argued that the demand was time-barred as clearances under exemption were made with CT-2 certificates, and credit reversal was disclosed on invoices. The appellant contended that since the department was aware of the clearances and the quantum of reversal, there was no suppression of facts. The appellant had been reversing credit at the time of clearances on a pro-rata basis, making the 8% reversal under Rule 6 unnecessary. The Appellate Tribunal agreed that the demand was barred by limitation as the show cause notice was issued after one year, and the appellant's disclosure of credit reversal prevented any further demand under Rule 6.

Issue 3:
The Tribunal noted that clearances under exemption were made with CT-2 certificates as per the prescribed procedure. The appellant had disclosed the reversal of credit on a pro-rata basis, which was known to the department. The Tribunal cited the Supreme Court's decision in the case of Commissioner of C. Ex. Mumbai-I Bombay Dying and Manufacturing Co. Ltd, stating that even if credit reversal was done after clearance but before utilization, it was sufficient compliance. Therefore, the Tribunal set aside the impugned order, allowing the appeal on both merit and limitation grounds.

This judgment highlights the importance of procedural compliance in availing exemptions and the significance of timely disclosure of relevant information to tax authorities to prevent demands being barred by limitation.