2018 (5) TMI 778 - AT - Central Excise

CENVAT credit - common input service credit was used for dutiable goods as well as the exempted service of trading - appellant did not file declaration under Rule 6(3A) - Rule 6(3)(i) of CCR - Held that - It is seen that Rule 6(3)(i) has been amended w.e.f. 01.06.2015 providing for reversal of 7% of the value of exempted service. The period involved in the present case is from July 2011 to March 2016. The requirement of reversal of an amount under Rule 6(3)(i) including the value of exempted service i.e. trading will arise only after the date of such amendment. For the period prior to 01.04.2015 there is no requirement of reversal of credit @ 7% of exempted service. This position has been clarified by the CBEC vide their Circular dated 07.12.2015. For the period prior to 01.04.2015 there is no requirement under Rule 6(3)(i) for any reversal of credit of input services availed for clearance of input as such - It has been submitted that on the value of inputs cleared as such the reversal on the value of goods as required under 3(5) has already been made. This aspect needs to be verified inasmuch as no details have been given on such reversed. In respect of reversal of credit of input services for the period subsequent to 01.04.2015 it is the submission of the appellant that proportionate credit reversal for input services has already been made even though the requirement of exercising an option as required under Rule 6(3A) has not been done by the appellant. The failure to exercise option is only a procedural requirement and may be overlooked since proportionate reversal of input services has already been made - demand set aside. Reversal of CENVAT credit - clearance of waste and scrap in the form of floor sweeping as well as discarded packing material - invocation of Rule 6(3) of CCR - Held that - the scrap of packing material cannot be said to have arisen during the course of manufacture of final products. Consequently the mischief of Rule 6(3) will not be attracted - demand set aside. Appeal allowed in part - part matter on remand.

Summary

Issues involved:
1. Reversal of cenvat credit under Rule 6(3)(i) for trading activity.
2. Demand raised for reversal under Rule 6(3) for waste and scrap clearance without duty payment.

Analysis:

Issue 1: Reversal of cenvat credit for trading activity
The appellant, engaged in manufacturing auto parts, faced a demand for reversal of cenvat credit under Rule 6(3)(i) for trading activities. The appellant argued that they had already reversed proportionate input service credit for trading activities as per Rule 6(3)(iii) and that the demand under Rule 6(3)(i) was unwarranted. They cited precedents like Dalmia Bharat Sugar and Industries Ltd. vs. CCE, C&ST, New Delhi and Tata Technologies Ltd. vs. CCE, Pune-I to support their stance. The appellant contended that the inputs cleared as such had their credit reversed under Rule 3(5), and the department failed to provide evidence that these inputs were procured for trading. The appellant also argued that Rule 6 does not apply to waste and scrap clearance, citing Maruti Suzuki India Ltd. vs. CCE, Delhi-III. The Revenue justified the demand, stating that clearing inputs without manufacturing amounted to trading, attracting the reversal requirement under Rule 6(3)(i).

Issue 2: Demand for reversal for waste and scrap clearance
The second issue pertained to the clearance of waste and scrap without duty payment, triggering a demand for reversal under Rule 6(3). The appellant argued that such clearance did not fall under Rule 6 as the scrap did not arise during the manufacturing process. Citing the Maruti Suzuki India Ltd. case, the Tribunal agreed that the scrap of packing material did not warrant reversal under Rule 6(3). Consequently, the demand for cenvat credit reversal on waste and scrap clearance was set aside.

In conclusion, the Tribunal remanded the matter to the adjudicating authority to verify the correctness of the reversal carried out on inputs and input services, especially post-01.04.2015. The impugned order was set aside, and the appeals were disposed of accordingly.