2019 (4) TMI 169 - AT - Central Excise

CENVAT Credit - common inputs / input services used both in the manufacture of dutiable products as well as exempted goods - non-maintenance of separate records - sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004 - Department was of the view that the appellants had not exercised option to pay proportionate credit on inputs / input services used in manufacture of exempted goods - Held that - When the manufacturer is not maintaining separate accounts for the common inputs used for manufacture of exempted as well as dutiable products, they have to comply with the provisions under sub-rule 3 (i) or (ii) of Rule 6 of CCR 2004. Thus, if the assessee is intending to pay an amount equivalent to cenvat credit attributable to inputs and input services as per the Explanation I in the said rule, they have to exercise the option and such option will be applicable to all the exempted goods / services of the assessee. Whether the said option is procedural or mandatory? - Held that - The Tribunal in the case of Mercedes Benz India (P) Ltd. 2015 (8) TMI 24 - CESTAT MUMBAI had occasion to analyse the similar facts and held that the aid requirement of exercising the option is only a procedural one. The main intention of this provision of law contained in sub-rule 3 of Rule 6 is that the assessee, who is not able to maintain separate accounts for common inputs / input services used, shall not avail cenvat credit on the inputs / inputs services used in manufacture of exempted goods - In the present case, appellants have informed vide their letter dt. 20.07.2009 that they intend to reverse cenvat credit on monthly basis on the inputs / input services used for production of electricity that is wheeled out to TNEB. As per the Explanation I of the said rule, the said option once exercised would be applicable to all the exempted goods manufactured by the appellant. On such score, the letter given by the appellant would be sufficient intimation to the department that they intend to avail the option stated in sub-rule 3 (ii) of Rule 6 of CCR 2004. Time Limitation - Held that - The SCN has been issued much later after two years on 22.5.2013 only. When the appellant has reversed the credit and intimated the department, the allegation that the appellant has suppressed the facts with intention to evade payment of duty / tax is unjustified - Appeal succeeds on limitation also. Demand do not sustain - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Irregular availing of CENVAT credit on inputs and input services.
2. Non-maintenance of separate accounts for common inputs/input services.
3. Applicability of sub-rule (3) of Rule 6 of CENVAT Credit Rules, 2004.
4. Reversal of proportionate credit.
5. Limitation and invocation of extended period for issuing show cause notice.

Detailed Analysis:

1. Irregular Availing of CENVAT Credit:
The appellants were engaged in manufacturing iron and steel products and were registered with the Central Excise department. The Preventive Unit officers discovered that the appellants were irregularly availing CENVAT credit on inputs such as lubricants, welding electrodes, and metal cutting gas, and on input services like Manpower Recruitment, Maintenance and Repair, Material Handling, and Business Auxiliary Services. These inputs and services were used for both dutiable and exempted goods without maintaining separate accounts.

2. Non-Maintenance of Separate Accounts:
The appellants did not maintain separate accounts for common inputs/input services as required under sub-rule (3) of Rule 6 of CENVAT Credit Rules, 2004. The department contended that the appellants had not exercised the option to pay proportionate credit on inputs/input services used in the manufacture of exempted goods, making them liable to pay an amount equivalent to 10% or 5% of the value of the exempted product, metallurgical coke.

3. Applicability of Sub-rule (3) of Rule 6 of CENVAT Credit Rules, 2004:
The department's view was that the appellants were liable to pay the specified percentage on the value of exempted goods due to their failure to maintain separate accounts or properly exercise the option to reverse proportionate credit. The appellants argued that they had reversed the proportionate credit attributable to exempted products, as evidenced by letters dated 20.07.2009 and 26.12.2011, which informed the department of their reversal of credit on inputs/input services attributable to exempted goods.

4. Reversal of Proportionate Credit:
The appellants argued that their letters to the department constituted sufficient intimation of their option to reverse proportionate credit under clause (ii) of Rule 6 (3) of CENVAT Credit Rules, 2004. They cited the Tribunal’s decision in Mercedes Benz India (P) Ltd. vs. CCE Pune, which held that the delay in intimation could be considered a procedural lapse and not a mandatory requirement. The Tribunal agreed with this interpretation, noting that the main objective of Rule 6 is to ensure that CENVAT credit is not availed for inputs/input services used in exempted goods.

5. Limitation and Invocation of Extended Period:
The appellants contended that the show cause notice issued on 22.05.2013 was time-barred, as they had already informed the department of the reversal of credit in 2009 and 2011. The Tribunal found that the department's allegation of suppression of facts with intent to evade duty/tax was unjustified, as the appellants had provided sufficient intimation regarding their credit reversal.

Conclusion:
The Tribunal concluded that the demand raised by the department could not be sustained on merits or on the grounds of limitation. The impugned order was set aside, and the appeal was allowed with consequential benefits as per law. The Tribunal emphasized that the requirement to exercise the option for reversing proportionate credit is procedural and not mandatory, and the appellants had sufficiently complied with the provisions of Rule 6 (3) of CENVAT Credit Rules, 2004.

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