2018 (7) TMI 409 - AT - Central Excise

Eligibility for recourse to payment of such amount as is prescribed in rule 6(3)(ii) of CENVAT Credit Rules, 2004 - noncompliance with the conditions in rule 6(3A) of the said Rules - Held that - There can be no doubt that the scheme of provisional payment of tax at the end of each month with adjustment for actuals at the end of the year attaches significance to the proportion that the credit of inputs/input services bears to that the exempted output/output services has with that of the total output/output services. While the provisional tax is to be based on the data of the previous financial year, the final adjustment is based on data for the relevant financial year. Accordingly, rule 6(3A) of Cenvat Credit Rules, 2004, while assuming that inputs used exclusively for manufacturing of exempt goods, can be isolated, acknowledges that inputs utilised for rendering of exempt services and input services used for provision of exempt services and exempted of input goods are not easily segregated. To the extent that input services have been used in common for dutiable and exempted goods, option of recourse to rule 6(3A) of CENVAT Credit Rules, 2004 cannot be denied - It is obvious that the adjudication order is based on the incorrect appreciation of the reasoning for such apportionment in the rules and the principle underlying the formula. The denial of the facility of reversal of proportionate credit is not consistent with law. The appellant is entitled to such reversal as an alternative to payment of 6% of the value of exempted goods. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of rule 6(3) of CENVAT Credit Rules, 2004 regarding payment of duty on exempted goods.
2. Application of rule 6(3A) of CENVAT Credit Rules, 2004 for provisional payment of tax.
3. Compliance with conditions for exercising option under rule 6(3)(ii) of CENVAT Credit Rules, 2004.
4. Calculation and adjustment of CENVAT credit for inputs and input services used in exempted goods/services.

Analysis:
Issue 1: The appellant, a manufacturer of petroleum products, faced a dispute regarding the payment of duty on exempted goods under rule 6(3) of CENVAT Credit Rules, 2004. The Commissioner confirmed recovery of the amount payable at 6% of the value of exempted goods. The appellant contested this order, arguing that they had complied with the relevant rules.

Issue 2: The impugned order held the appellant ineligible for the payment option under rule 6(3)(ii) due to noncompliance with conditions in rule 6(3A) of the CENVAT Credit Rules, 2004. The rule outlines the procedure for provisional payment of tax in specific circumstances, including reporting requirements and method of computing provisional tax based on inputs and input services used in exempt goods/services.

Issue 3: The appellant contended that they did not provide exempt services and maintained separate accounts for inputs used in exempt goods. They mistakenly believed that certain services fell under exempted services, leading them to discharge the liability under rule 6(3A). The authorities held that the appellant was not engaged in exempt services, making the application of the rule inoperable.

Issue 4: The Tribunal disagreed with the authorities' interpretation, emphasizing that the formula for computing provisional tax under rule 6(3A) considers the proportion of credit of inputs/input services to exempted output/services. The Tribunal found that denial of the reversal of proportionate credit was inconsistent with the law, allowing the appellant's appeal and setting aside the impugned order.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting the importance of correctly interpreting and applying the provisions of the CENVAT Credit Rules, 2004. The judgment underscored the significance of complying with conditions for the payment of duty on exempted goods and the calculation of CENVAT credit for inputs and input services used in manufacturing exempt goods or providing exempt services.