2017 (4) TMI 1022 - AT - Central Excise

Reversal of CENVAT credit - Rule 6 (3A) of CCR - demand on the ground that appellant has not maintained separate accounts for common input services used for manufacture of exempted and dutiable products for the period 2008-2009 and 2009-2010 - Held that - appellant having reversed the proportionate credit the confirmation of demand of entire credit of input services is unsustainable - The impugned order to the extent of confirming the entire credit on input services is set aside and modified to the extent of sustaining the proportionate credit of ₹ 5,10,346/- along with interest which has been already reversed by the appellant - appeal allowed - decided partly in favor of appellant.

Summary

Issues involved:
Confirmation of demand for not maintaining separate accounts for common input services used for manufacture of exempted and dutiable products for the period 2008-2009 and 2009-2010.

Analysis:

The case revolved around the confirmation of demand due to the alleged failure of the appellant to maintain separate accounts for common input services used for manufacturing exempted and dutiable products during the specified period. The Show Cause Notice was issued based on the claim that the appellant had not maintained separate accounts. However, before the notice was issued, the appellants had already reversed the proportionate credit of ?5,10,346 and informed the department about it. The department contended that the appellant had not intimated their option under Sub Rule (i) and (ii) of Rule 6(3A) of CENVAT Credit Rules. The original authority accepted that the proportionate credit had been reversed but proceeded to confirm the reversal of the entire credit on input services used for both dutiable and exempted products amounting to ?25,32,810. The appellant argued that they had already reversed the proportionate credit along with interest before the notice was issued. The department was criticized for confirming the entire credit despite the reversal. The appellant cited relevant case laws to support their position.

During the appeal, the Ld. AR reiterated the findings in the impugned order but acknowledged that the adjudicating authority had dropped the proposal to recover 6% on the value of clearances and that there was no demand in the show cause notice for the recovery of the entire credit of input services. The Commissioner was criticized for confirming the entire credit without any allegation in the show cause notice. The appellant was deemed eligible to avail credit on input services used for dutiable products and had already reversed the proportionate credit for exempted products, which was undisputed by the department. The primary issue was the failure of the appellant to make an option under Rule 6(3A) of CENVAT Credit Rules. The Tribunal's previous decisions were cited to argue that if the appellant did not intimate the department about exercising the option, then the demand for 6% of the value on clearances of exempted products could not be enforced. The confirmation of the demand for the entire credit on input services was deemed unsustainable, and the order was modified accordingly, allowing the appeal partly in favor of the appellant.

In conclusion, the judgment highlighted the importance of following due process and ensuring that demands are based on valid allegations raised in show cause notices. The appellant's actions in reversing the proportionate credit were considered, and the confirmation of the entire credit on input services was found to be unsustainable without proper grounds. The Tribunal's decisions in similar cases were crucial in determining the outcome of the appeal.