2017 (11) TMI 764 - AT - Central Excise

CENVAT credit - whether the appellant after discharging 10% of the value of the exempted products for the quarter 01.04.2008 to 30.6.2008 can choose/opt to follow the alternate option of reversal of Cenvat Credit availed on inputs attributable to exempted products for the remaining period of nine months ie. from 01.07.2008 to 31.03.2009? Held that - Sub Rule (3)of Rule 6 of CCR 2004 reveals that an assessee shall follow either of the options as applicable to him prescribed under Clause (i) or clause (ii) of Sub Rule (3) of the said Rule(s) of Cenvat Credit Rules 2004. The explanation-I appended to the said Sub Rule makes it clear that once the assessee avails any of the options ie. to pay 10% of the value of the exempted goods or reversal of proportionate Cenvat Credit availed on inputs attributable to manufacture of exempted goods subject to the conditions and procedures laid down under Sub Rule (3A) the same cannot be altered in a given financial year - In the present case the appellant availed the option by discharging 10% of the value of the exempted products for the initial quarter ie. from 01.04.2008 to 30.6.2008 for which no procedure has been prescribed for exercising such option whereas to follow reversal of proportionate Cenvat Credit on inputs availed and attributable to exempted products the detailed procedure is prescribed under Sub Rule 3A of CCR 2004. Therefore the appellant once exercised its option for the first quarter by discharging 10% of the value of the exempted products they cannot switch over to the second route/option of reversal of proportionate credit availed on inputs attributable to exempted products during the same financial year. Penalty - Held that - the demand has been issued for the normal period of limitation and the amended Rule was inserted with effect from 01.04.2008 therefore initial non-compliance should be viewed leniently - imposition of plenty 3, 00, 000/- appears to be too harsh - penalty reduced to 10, 000/-. Appeal allowed in part.

Issues:
1. Interpretation of Rule 6(3) of the Cenvat Credit Rules 2004 regarding the option to discharge 10% of the value of exempted products or to reverse proportionate credit availed on inputs.
2. Whether the appellant can change their option during the same financial year.
3. Application of relevant case laws in determining the outcome of the appeal.

Issue 1: Interpretation of Rule 6(3) of the Cenvat Credit Rules 2004
The case involved a dispute where the appellant utilized inputs common to dutiable finished goods and exempted products. The appellant had been discharging 10% of the value of exempted products as per Rule 6(3) of the Cenvat Credit Rules 2004. After an amendment to Rule 6(3) in 2008, providing an option to discharge 10% of the value of exempted products or to reverse proportionate credit availed on inputs, the appellant opted to reverse credit from July 2008. The issue was whether the appellant could switch options during the same financial year. The Tribunal analyzed the provisions of Rule 6(3) and noted that once an option is exercised, it cannot be altered in the same financial year. The Tribunal referred to the explanation in Rule 6(3) which clarified that the chosen option must be maintained for the entire financial year. Therefore, the appellant, having initially chosen to discharge 10% of exempted products, was not allowed to switch to the reversal of credit option during the same financial year.

Issue 2: Changing the Option During the Same Financial Year
The appellant argued that they had exercised the reversal of credit option for the first time in the financial year 2008-09 from July 2008 and had not changed their option during the same year. However, the Revenue contended that the appellant had initially chosen to discharge 10% of exempted products from April to June 2008, thus barring them from switching options within the same financial year. The Tribunal upheld the Revenue's argument, emphasizing that the appellant's initial choice of discharging 10% of exempted products for the first quarter prevented them from later opting for the reversal of credit option during the same financial year.

Issue 3: Application of Case Laws
The appellant cited a judgment in the case of Mercedes Benz India (P) Ltd to support their argument. However, the Tribunal found that this judgment was not applicable to the present case. In contrast, the Revenue referred to a judgment in the case of M/s Jubilant Life Sciences Ltd, which supported their position. The Tribunal agreed with the Revenue's interpretation and distinguished the Mercedes Benz case, highlighting the failure of compliance with prescribed procedures in that case. The Tribunal concluded that the penalty imposed was too harsh considering the circumstances and reduced it significantly. Ultimately, the Tribunal partially allowed the appeal, modifying the penalty and upholding the decision regarding the appellant's option under Rule 6(3) of the Cenvat Credit Rules 2004.

In conclusion, the Tribunal's judgment clarified the limitations on changing options under Rule 6(3) of the Cenvat Credit Rules 2004 within the same financial year and emphasized the importance of adhering to prescribed procedures. The case highlighted the significance of understanding and complying with statutory provisions to avoid adverse consequences.

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