2018 (10) TMI 524 - AT - Central Excise

CENVAT credit - Invocation of Rule 6 of CENVAT Credit Rules, 2004 - case of appellant is that reversal of credit and payment of interest was made before issuance of SCN dated 13.09.2004 i.e. on 26.09.2013. Thereafter, there is no question of invoking Rule 6 of CENVAT Credit Rules, 2004 - Held that - Though the appellant had availed the credit in respect of common service which are attributing to dutiable goods as well as trading activity, however, on pointed out by the audit party, they have reversed not on pro rata credit but entire credit along with interest before issuance of SCN, accordingly the provision of rule 6 shall not apply. Even under Rule 6(3A) there is provision for reversal of the proportionate credit attributing to the exempted service therefore after reversal of the credit along with interest, the demand under Rule 6 does not sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availment of CENVAT Credit on common input service.
2. Reversal of credit and interest payment.
3. Applicability of Rule 6 of CENVAT Credit Rules, 2004.
4. Tribunal judgment in a similar case.

Analysis:
1. The appellant, engaged in manufacturing excisable goods, availed CENVAT Credit on common input services. Upon audit raising concerns, the appellant reversed the entire credit of the common input service along with interest. A show cause notice (SCN) was issued proposing a demand under Rule 6 of CENVAT Credit Rules, 2004. The demand was confirmed by the adjudicating authority and upheld by the Commissioner, leading to the present appeal.

2. The consultant for the appellant argued that a small credit amount was availed during a specific period, which was reversed upon objection by the audit party. The consultant contended that the reversal was done before the issuance of the SCN, and thus, Rule 6 should not apply. Citing a Tribunal judgment in a similar case, the consultant emphasized the entitlement to the pro-rata portion of the credit for dutiable goods.

3. The Additional Commissioner for the Revenue reiterated the findings of the impugned order, supporting the demand under Rule 6. However, upon careful consideration, the Member (Judicial) found that the appellant had indeed availed the credit for common services related to both dutiable goods and trading activities. Despite this, the appellant voluntarily reversed the entire credit along with interest upon audit's pointing out, before the SCN was issued. As per Rule 6(3A), there is provision for the reversal of proportionate credit related to exempted services. After the reversal and interest payment, the Member concluded that the demand under Rule 6 was not sustainable. The Tribunal judgment cited by the appellant's counsel supported this view, leading to setting aside of the demand and allowing the appeal.

4. In the final decision, the demand was deemed unsustainable, and the appeal was allowed based on the reversal of credit and interest payment made before the SCN was issued, in alignment with the provisions of Rule 6 and relevant Tribunal judgments.