2018 (7) TMI 319 - AT - Central Excise

Reversal of CENVAT Credit - clearance of inputs as such - input services - Held that - As per Rules 6(1) and 6(2) of the Rules, credit will not be permissible on inputs or input services used for the manufacture of exempted goods or provision of exempted services - the clearance of inputs as such as mentioned in Rule 3(5) of the Cenvat Credit Rules, 2004 is to be treated as clearance of the goods from factory on payment of duty and the question of reversal of the credit taken on various inputs services cannot arise. The credit of ₹ 26,468/- was availed towards repairing services, insurance, maintenance and repair of vehicles, and Rent A Cab Service had been reversed and the Ld. Adjudicating Authority had dropped the proceedings for recovery of this cenvat credit amounting to ₹ 26,468/- but has imposed penalty of equal amount under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 - The CBEC instructions No.96/85/2015-CX.I dated 07.12.2015, in paragraph B.26, it has been observed that there is no provision in the present Rule 3(5) and accordingly there is no such necessity of amending Rule 3(5) for incorporating reversal of credit taken on inputs services. The appellant is not required to reverse the credit on input services that was taken along with duty paid on such inputs - appeal allowed - decided in favor of appellant.

Issues:
1. Availment of Cenvat credit on inputs used for exempted goods and services.
2. Qualification of vehicles as capital goods for Cenvat credit.
3. Failure to maintain separate records under Cenvat Credit Rules.
4. Admissibility of credit on repairing services, insurance services, and rent-a-cab services.

Analysis:

1. The appellant availed Cenvat credit on inputs used for manufacturing exempted goods and services, leading to a show cause notice for non-maintenance of separate accounts. The appellant reversed a portion of the credit and argued that identifiable inputs were used exclusively for dutiable goods. However, the tribunal found the appellant liable under Rule 6(3) of the Cenvat Credit Rules for not maintaining separate records, necessitating payment based on a formula for exempted goods/services.

2. The issue of vehicles qualifying as capital goods for Cenvat credit was raised due to credit availed on vehicle-related services. The tribunal determined that vehicles did not meet the criteria for capital goods, leading to inadmissible credit on services like repairing, insurance, and rent-a-cab. The appellant's argument under Rule 3(5) and CBEC instructions was considered, but the tribunal upheld the inadmissibility of credit on these services.

3. Failure to maintain separate records as per Rule 6 of the Cenvat Credit Rules was acknowledged by the appellant. The tribunal highlighted the liability under Rule 6(3) for not segregating inputs used for dutiable and exempted goods/services. The appellant's contention regarding identifiable inputs was countered by the tribunal's interpretation of the rules and formula for calculating liabilities.

4. The admissibility of credit on repairing services, insurance, and rent-a-cab services was contested, with the appellant reversing a portion of the credit. The tribunal examined CBEC instructions and ruled that no reversal of service tax credit was required under Rule 3(5) of the Cenvat Credit Rules. The penalty imposed was upheld, but the demand for reversal of credit on input services was deemed unnecessary.

In conclusion, the tribunal set aside the impugned order, allowing the appeal filed by the appellant with consequential benefits, if any, on the grounds of inadmissible credit and liability under the Cenvat Credit Rules.

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