2019 (1) TMI 175 - AT - Central Excise

CENVAT credit - common input services - Insurance Service - Telephone Service - Audit Charges etc. - these services are used for mining as well as manufacturing process carried at factory - it is alleged that that the Low Grade Bauxite is an exempted product under Notification No. 4/2006-CE - Rules 6(3) of Cenvat Credit Rules, 2004 - demand of 10%/ 5% of the value of exempted goods - Held that - From the facts it is undisputed that the appellant have been reversing cenvat credit proportionate to the credit on input service used for exempted goods along with interest, therefore, first the credit though availed at the time of receipt of input service but after reversal thereof along with interest the position is if credit was not availed. This issue has been consistently considered in various judgments wherein it was held that if the assesse reversed the cenvat credit in respect of common input service used in the manufacture of dutiable and exempted goods the demand equal to 10%/ 5% will not sustain - reliance paced in the case of M/S. MERCEDES BENZ INDIA (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015 (8) TMI 24 - CESTAT MUMBAI . Thus, once the appellant have opted reversal of the credit in respect of service attributed to the exempted goods and in case of delay, the interest is also paid then the demand of 5% / 10% under Rule 6(3) cannot be made - In the present case since the Ld. Commissioner has demanded 5% / 10% of the value of exempted goods, he has not verified the correctness of actual cenvat credit attributed to exempted goods as reversed by the assesse. Therefore, only for the purpose of verification of such quantification of reversal, the matter in case of assessee s appeals is remanded to the original authority - issue of penalty is also to be considered - appeal allowed by way of remand.

Issues Involved:
1. Classification of Low Grade Bauxite as non-excisable goods.
2. Applicability of Rule 6 of Cenvat Credit Rules, 2004 to non-excisable goods.
3. Proportionate reversal of cenvat credit for common input services.
4. Legality of demand for 10%/5% of the value of exempted goods.
5. Compliance with procedural requirements under Rule 6(3A).
6. Imposition of penalties under Rule 15 of Cenvat Credit Rules and Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

1. Classification of Low Grade Bauxite as Non-Excisable Goods:
The appellant argued that Low Grade Bauxite, sold directly from the mining site without any further processing, is non-excisable. The appellant cited several judgments, including *CCE vs Steel Authority of India Ltd.*, which held that mining does not constitute the manufacture of goods, thus the mined product is not excisable. The tribunal agreed with this interpretation, recognizing that Low Grade Bauxite, not subjected to any manufacturing process, is not excisable.

2. Applicability of Rule 6 of Cenvat Credit Rules, 2004 to Non-Excisable Goods:
The appellant contended that Rule 6, which mandates the reversal of cenvat credit for exempted goods, does not apply to non-excisable goods. According to Rule 2(d), exempted goods must be excisable, and since Low Grade Bauxite is non-excisable, it cannot be considered exempted. The tribunal, referencing judgments like *Sahni Strips & Wires (P) Ltd.*, concurred that Rule 6 does not apply to non-excisable goods.

3. Proportionate Reversal of Cenvat Credit for Common Input Services:
The appellant argued that only the proportionate amount of cenvat credit attributable to common input services used for both dutiable and non-dutiable goods should be reversed. The tribunal cited *Orion Appliances Ltd.*, which held that proportionate reversal is sufficient. The tribunal also noted that subsequent amendments to Rule 6 and related circulars support the proportionate reversal approach.

4. Legality of Demand for 10%/5% of the Value of Exempted Goods:
The tribunal examined whether the demand for 10%/5% of the value of exempted goods under Rule 6(3) was justified. It was observed that the appellant had been reversing the proportionate cenvat credit along with interest, aligning with the principle that subsequent reversal equates to non-availment of credit, as upheld in *Hello Minerals Water (P) Ltd.* and other cases. Therefore, the tribunal found the demand for 10%/5% of the value of exempted goods unsustainable.

5. Compliance with Procedural Requirements under Rule 6(3A):
The tribunal addressed the procedural compliance under Rule 6(3A), noting that the appellant had intimated the jurisdictional superintendent about the reversal of credit, albeit not in the exact prescribed manner. The tribunal emphasized that procedural lapses should not negate the substantive compliance, referencing *Mercedez Benz India (P) Ltd.* and other judgments that support this view.

6. Imposition of Penalties under Rule 15 of Cenvat Credit Rules and Section 11AC of the Central Excise Act, 1944:
The tribunal considered the imposition of penalties in light of the proportionate reversal of credit and payment of interest by the appellant. It was concluded that since the substantive compliance was met, the penalties under Rule 15 and Section 11AC were not warranted. The tribunal remanded the case for verification of the actual cenvat credit reversal.

Conclusion:
The tribunal set aside the demand for 10%/5% of the value of exempted goods and remanded the case for verification of the proportionate reversal of cenvat credit. The penalties were also remanded for reconsideration based on the verification of the credit reversal. The tribunal's decision aligns with the principles established in various judgments, emphasizing substantive compliance over procedural lapses.

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