2018 (12) TMI 165 - AT - Central Excise

CENVAT Credit - input services used in or relation to the generation of electricity sold outside the factory - the proportionate cenvat credit on input services used in relation to generation of Steam and Fly-Ash (exempt goods) reversed - Rule 6(3) of Cenvat Credit Rules, 2004 - time limitation - demand under Rule 6(3) of Cenvat Credit Rules for the period prior to April, 2010 in view of retrospective amendment by the Finance Act, 2010 - whether the demand confirmed by the Revenue under Rule 6(3) i.e. 5%/10% on value of exempted goods is legal and proper? Held that - The appellant is not disputing that the cenvat credit in respect of input services attributed to exempted goods namely Steam, Fly-Ash and non excisable goods i.e. electricity sold outside their factory, is not admissible and they have admittedly reversed the proportionate cenvat credit and also paid the interest from the date of taking credit till the date of reversal. The appellant rightly availed the option of Sub Rule 3(A) of Rule 6 of CCR, 2004, the only lapse on the part of the appellant is that the payment of cenvat credit was made belatedly, however the appellant have paid interest for the period right from availing the cenvat credit till the payment/reversal of proportionate cenvat credit which create a position as if the appellant have not availed cenvat credit right from the date when cenvat credit was availed. Therefore there is no reason for imposing option under Clause (i) of Rule 6(3) i.e. payment of 5%/10% of the value of exempted goods - the demand confirmed equal to 5%/10% of value of the exempted goods is not sustainable. Time Limitation - Penalty - Held that - Since the issue regarding reversal of cenvat credit under Rule 6(3) is contentious and various cases on the same issue have been made out which can be seen from such of judgment given above, therefore, on the issue related to Rule 6(3) particularly in the facts of the present case it cannot be said that the appellant had malafide intention to evade payment of duty. Therefore, demand for the extended period is also hit by limitation for the same reason the penalties imposed are also unsustainable. The proportionate credit paid by the appellant along with interest is sufficient compliance under Rule 6(3), accordingly the same is maintained - demand under Rule 6(3)(i) i.e. 5%/10% of value of the exempted goods and all the penalties are set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Validity of the demand under Rule 6(3) of Cenvat Credit Rules, 2004 after the reversal of proportionate cenvat credit on input services used for generating Steam and Fly-Ash.
2. Department's stance on demanding amounts under Rule 6(3) for common input services used for generating exempted goods after accepting the reversal for electricity.
3. Whether the demand is barred by limitation under Proviso to Section 11A of Central Excise Act, 1944 read with Rule 14 of Cenvat Credit Rules, 2004.
4. Sustainability of the demand under Rule 6(3) for the period prior to April 2010 in light of the retrospective amendment by the Finance Act, 2010.

Detailed Analysis:

Issue A: Validity of the demand under Rule 6(3) of Cenvat Credit Rules, 2004
The appellant reversed the proportionate cenvat credit on input services used for generating Steam and Fly-Ash. The Tribunal held that the appellant had complied with the provisions by reversing the proportionate credit along with interest. The Tribunal emphasized that once the credit is reversed along with interest, it is as if the credit was never availed. Therefore, the demand for 5%/10% of the value of exempted goods under Rule 6(3) was deemed unsustainable. This conclusion was supported by multiple judgments, including Jay Balaji Industries Ltd and Swiss Parental Pvt. Ltd, which established that the reversal of credit along with interest satisfies compliance requirements.

Issue B: Department's stance on demanding amounts under Rule 6(3) for common input services
The Tribunal noted that the appellant had already reversed the proportionate credit for electricity, a non-excisable good, and had informed the department. The reversal included the credit for Steam and Fly-Ash. The Tribunal found no justification for the department to demand additional amounts under Rule 6(3) after the appellant had already complied with the proportionate reversal. The Tribunal reiterated that the appellant's actions, including the payment of interest, placed them in compliance with the rules, making further demands unnecessary.

Issue C: Limitation under Proviso to Section 11A of Central Excise Act, 1944
The Tribunal held that the demand was barred by limitation. It was noted that the appellant had regularly filed statutory returns and disclosed all relevant information, including the availment of credit and the manufacture and clearance of exempted and non-excisable goods. The Tribunal found no evidence of suppression of facts or malafide intention to evade duty. Consequently, the extended period for demand was not applicable, and the penalties imposed were also deemed unsustainable.

Issue D: Retrospective amendment by the Finance Act, 2010
The Tribunal acknowledged the retrospective amendment brought by the Finance Act, 2010, which allowed for the proportionate reversal of cenvat credit attributed to exempted goods. The appellant's reversal of credit along with interest was found to be in line with the amended provisions. The Tribunal concluded that the appellant's actions were sufficient to comply with the Cenvat Credit Rules, thus nullifying the need for further demands under Rule 6(3) for the period prior to April 2010.

Conclusion:
The Tribunal concluded that the proportionate credit paid by the appellant along with interest was sufficient compliance under Rule 6(3). The demand for 5%/10% of the value of exempted goods and all penalties were set aside. The appeal was allowed, and the Tribunal pronounced its decision in open court on 03.12.2018.

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