2019 (8) TMI 1175 - HC - Central Excise

Entitlement to Input Tax Credit - failure of the assessee/respondent to exercise option under Rule 6(3A) of the Cenvat Credit Rules, 2004 - revenue s argument is that Rule 6(3A) is not merely procedural but was binding upon the assessee, who could not have claimed the benefit of even proportionate credit or it would have otherwise been entitled to inputs service for which Cenvat Credit was admissible, without following the procedure - HELD THAT - The show cause notice, in this case, covers two different periods substantial part of that period was when Rule 6(3A) did not exist. During this time, adjudicating authorities were bound to follow the rule while granting inputs credit in respect of services that qualify for it, even while excluding the credit for noneligible services and activities. All that Rule 6(3A) has done is to streamline the procedure for apportioning credits to ensure that proportionate credit, to the extent admissible could be claimed for the business and ensure that the concerned adjudicating officers do not have to spend time on carrying out the exercise. The amendment i.e. procedure for apportionment under sub-rule 3(A) was facilitative and procedural. The entitlement to credit otherwise is in Rule 3 of the Cenvat Credit Rules. It is not disputed that Cenvat credit can be given in respect of services only when the inputs services qualify for that benefit and not for other inputs which are not eligible for the process of manufacture. Appeal dismissed - decided against Revenue.

Summary

Issues:
Delay in filing appeals condonation, Disentitlement to input credit due to failure to exercise option under Rule 6(3A) of Cenvat Credit Rules, 2004, Interpretation of Rule 6(3)(i) and Rule 6(3A), Procedural violation vs. substantive benefit under Rule 6(3A), Applicability of Rule 6(3A) to the period prior to its existence, Binding nature of Rule 6(3A) on the assessee, Entitlement to proportionate credit without following Rule 6(3A) procedure.

Delay Condonation:
The High Court allowed the delay in filing the appeals based on the reasons stated in the applications, thereby condoning the delay.

Disentitlement to Input Credit:
The revenue contested the CESTAT's decision allowing input credit to the assessee despite not exercising the option under Rule 6(3A) of the Cenvat Credit Rules, arguing that the benefit could not be granted without following the prescribed procedure.

Interpretation of Rules:
The case involved the interpretation of Rule 6(3)(i) and Rule 6(3A) of the Cenvat Credit Rules, particularly regarding the reversal of credit for exempted services and the procedural requirements for claiming proportionate credit.

Procedural Violation vs. Substantive Benefit:
The appellant argued that the failure to exercise the option under Rule 6(3A) was only a procedural violation, contending that proportionate credit reversal had already been made, while the revenue emphasized the binding nature of Rule 6(3A) on the assessee.

Applicability of Rule 6(3A):
The Court clarified that Rule 6(3A) was not applicable to the period prior to its existence, and the entitlement to credit was governed by Rule 3 of the Cenvat Credit Rules.

Binding Nature of Rule 6(3A):
The revenue asserted that Rule 6(3A) was binding on the assessee, and the benefit of proportionate credit could not be claimed without following the prescribed procedure.

Entitlement to Proportionate Credit:
The Court held that Cenvat credit could only be given for services that qualify for the benefit, emphasizing that the entitlement to credit was governed by Rule 3, and dismissed the appeals as no question of law arose.