2018 (5) TMI 971 - AT - Central Excise

CENVAT credit - inputs/input services used both for dutiable and exempt final product - records with regard to the inputs being maintained by the assessee as required under Rule 6(2) of the CCR - applicability of Rule 6(3)(c) of CCR - Held that - Both the authorities have not given any reasons as to how provisions of Rule 6(3)(c) are not applicable in the present case and how Rule 6(3)(b) is applicable - Since in the present case, the appellant is a manufacturer as well as registered as a service provider and they have maintained separate accounts with regard to inputs, therefore, the provisions of Rule 6(3)(c) will be applicable to them which specifically states that the provider of output service shall utilize credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service - Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
- Applicability of CENVAT Credit Rules, 2004 regarding maintenance of separate records for input services
- Demand of 10% of the value of exempted goods under Rule 6(3)(b) of CCR
- Interpretation of Rule 6(3)(c) in the context of the case

Analysis:
The appeal involved a dispute regarding the applicability of CENVAT Credit Rules, 2004 concerning the maintenance of separate records for input services. The appellant, engaged in manufacturing various products falling under specific chapters of CETA, availed CENVAT credit under the rules. The issue arose when the Department noticed that the appellant had taken credit on input services used in the manufacture of exempted goods, which was contrary to the provisions of CCR. A show-cause notice was issued, proposing a demand for 10% of the price of the exempted goods under Rule 6(3)(b) of CCR, along with interest and penalties.

The adjudicating authority held that failure to maintain separate records for input services necessitated payment under Rule 6(3)(b) of CCR. The appellant contended that they had maintained separate accounts for inputs used in dutiable and exempted goods, and as a registered service provider, Rule 6(3)(c) should apply instead. The Commissioner(Appeals) rejected the appeal, leading to the present appeal before the tribunal.

Upon hearing both sides and examining the records, the tribunal found that the appellant had indeed availed input service credit without separate records for input services but had maintained separate accounts for inputs. The tribunal noted that Rule 6(3)(c) should apply in this case, as the appellant was both a manufacturer and a service provider. Rule 6(3)(c) limited the utilization of credit to 20% of the service tax payable on taxable output services. The appellant had complied with this rule, as evidenced by the ST3 return on record. Therefore, the tribunal held that the demand under Rule 6(3)(b) was incorrect, setting aside the impugned order and allowing the appeal.

In conclusion, the tribunal's decision clarified the application of Rule 6(3)(c) in the context of maintaining separate records for input services, emphasizing compliance with the rules and provisions of CCR to determine the correct utilization of credit and subsequent demands.