2019 (4) TMI 1261 - AT - Central Excise

CENVAT Credit - common input services used for exempted as well as dutiable final products - non-maintenance of separate records - applicability of Rule 6(3) of CCR - HELD THAT - The view of the Department and the impugned order based on the same is frivolous, as even if the appellant want to maintain separate account in respect of the services mentioned above, it would be impossible for them. Lex non cogit ad impossibilia is well settled legal principle and therefore, the option of maintaining separate account and inventory in respect of the services cannot be forced upon them. Section 6(3) of the Rules, on account of retrospective amendment to this Rule, also gives an option to a manufacturer to reverse the proportionate credit in respect of the Cenvated inputs/input services used in or in relation to the manufacture of exempted final products, which the appellant in this case have done. Appeal allowed - decided in favor of appellant.

Issues:
1. Interpretation of Rule 6(3) of the Cenvat Credit Rules regarding the maintenance of separate accounts for dutiable and exempted final products.
2. Application of Rule 6(3) in the context of availing common services for both dutiable and exempted final products.
3. Retrospective amendment to Rule 6(3) and its impact on proportionate credit reversal.
4. Assessment of the liability under Rule 6(3) based on the value of exempted final products.

Interpretation of Rule 6(3) of the Cenvat Credit Rules:
The case involved a dispute regarding the appellant's compliance with Rule 6(3) of the Cenvat Credit Rules, specifically related to maintaining separate accounts for inputs used in dutiable and exempted final products. The appellant contended that due to the nature of common services for both types of products, it was impractical to maintain separate accounts as required by the rule. The Tribunal acknowledged the appellant's challenge, citing the legal principle of "Lex non cogit ad impossibilia," emphasizing that it is not feasible to enforce obligations that are impossible to fulfill. The Tribunal found the Department's objection and the impugned order to be untenable in this context.

Application of Rule 6(3) to Common Services:
The appellant availed services like Telecom, Chartered Accountant, Business Auxiliary, Management Consultancy, and General Insurance Services for both dutiable and exempted final products. The Department argued that since separate accounts were not maintained for these common services, Rule 6(3) should apply, leading to a demand for payment based on the value of exempted final products. However, the Tribunal disagreed with this interpretation, stating that enforcing separate accounts for such common services would be impractical. The Tribunal noted that the retrospective amendment to Rule 6(3) allowed for the reversal of proportionate credit, which the appellant had already done. Therefore, the Tribunal found the Department's position to be without merit.

Retrospective Amendment to Rule 6(3):
The Tribunal highlighted the retrospective amendment to Rule 6(3), which provided manufacturers with the option to reverse proportionate credit based on a prescribed formula. In this case, the appellant had reversed a significant amount of credit, far exceeding the proportionate credit calculated. The Tribunal emphasized that this option, combined with the impracticality of maintaining separate accounts for common services, rendered the Department's demand under Rule 6(3) unjustified. Consequently, the Tribunal found in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential relief.

Assessment of Liability under Rule 6(3):
The Department's contention regarding the liability under Rule 6(3) was based on the value of the exempted final products. However, the Tribunal, considering the impracticality of maintaining separate accounts for common services and the appellant's compliance with the proportionate credit reversal option, deemed the Department's approach unsustainable. The Tribunal's decision to set aside the impugned order and allow the appeal was grounded in the legal principles of practicality and fairness in applying the Cenvat Credit Rules.

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