2018 (5) TMI 1406 - AT - Central Excise

CENVAT credit - common input services used in manufacture of taxable as well as for trading activities - non-maintenance of separate records - Held that - in the present case, the appellant has not maintained separate accounts for dutiable goods as well as exempted goods - Once the appellant has reversed entire credit of common input service along with interest, then in that situation, the appellant is not required to pay 6% or 7% of the value of exempted goods - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
- Eligibility of cenvat credit on input and input services used in trading activity deemed to be exempted service.
- Requirement to maintain separate accounts for input services used in relation to manufacturing of exempted goods.
- Applicability of Rule 6(3)(i) of Cenvat Credit Rules.
- Interpretation of newly introduced Rule 6(3AA) of Cenvat Credit Rules.
- Liability to pay 6% or 7% of the value of exempted goods when common input service credit is reversed.

Analysis:

Issue 1: Eligibility of cenvat credit on input and input services used in trading activity deemed to be exempted service.
In this case, the appellant was engaged in both manufacturing and trading activities of Air Filters and related products, availing cenvat credit on input and input services. However, it was observed during an audit that trading activity was deemed to be an exempted service, making the appellant ineligible to take credit under Rule 6(1) of Cenvat Credit Rules, 2004.

Issue 2: Requirement to maintain separate accounts for input services used in relation to manufacturing of exempted goods.
Rule 6(2) of the Cenvat Credit Rules 2004 mandates the maintenance of separate accounts for inputs used in relation to the manufacture of exempted goods or provision of exempted services. Failure to follow this procedure can lead to a demand for payment based on the value of exempted goods and services.

Issue 3: Applicability of Rule 6(3)(i) of Cenvat Credit Rules.
The demand was raised under Rule 6(3)(i) of the Cenvat Credit Rules, which requires payment equal to a percentage of the value of exempted goods when common input service credit is not apportioned between taxable and exempted activities.

Issue 4: Interpretation of newly introduced Rule 6(3AA) of Cenvat Credit Rules.
The appellant sought consideration under Rule 6(3AA), inserted in the Cenvat Credit Rules 2004, which provides an option for manufacturers or service providers to rectify non-compliance by following specified procedures and paying the due amount with interest.

Issue 5: Liability to pay 6% or 7% of the value of exempted goods when common input service credit is reversed.
The appellant reversed the entire common input service credit and argued that the demand under Rule 6(3)(i) was not sustainable. Citing precedent cases, the appellant contended that once credit proportional to exempted products is reversed, there is no requirement to pay a percentage of the value of exempted goods.

In the judgment, the Tribunal found that the appellant had reversed the common input service credit and interest, leading to the conclusion that the demand under Rule 6(3)(i) was not sustainable. Relying on precedent decisions, the Tribunal set aside the impugned order, allowing the appeal.

This analysis provides a detailed overview of the issues involved in the legal judgment and the Tribunal's decision based on the arguments presented by both parties and relevant legal provisions.