2019 (8) TMI 1253 - AT - Central Excise

CENVAT credit - common input services used in trading of goods as well as for dutiable goods - Rule 6(3) of the Cenvat Credit Rules, 2004 - Adjudicating Authority, however observed that though the head office has reversed the credit availed by them on common input services but the same was legally required to be reversed at the time of transfer of the credit to the noticee s factory. HELD THAT - The Adjudicating Authority is not disputing the fact of reversal of Cenvat credit availed on common input services by the head office. He is also not doubting the correctness of the said reversal. The said reversal has been made by the head office alongwith payment of interest of ₹ 6,98,314/- lakhs. The effect of said reversal is as if no credit was availed by the appellant in respect of the common services which were utilized for trading of the goods - In such a scenario, further demand of a particular percentage of the value of the traded goods in terms of Rule 6(3) is neither in accordance with the provisions of Cenvat Credit Rules nor with the settled principle of law. It stands held by various decisions of the judicial and quasi-judicial authorities that in case of reversal of proportionate credit attributable to the exempted goods/services, further demand in terms of Rule 6(3) is unsustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues: Application of Rule 6(3) of the Cenvat Credit Rules, 2004 on availing Cenvat credit for common input services used in trading of goods.

Analysis:
1. The appellant, engaged in manufacturing pesticides and bio-extracts, availed Cenvat credit on inputs and input services, including common input services used for trading exempted goods. The Revenue contended that the appellant should pay 5/6% of the value of traded goods under Rule 6(3) of the Cenvat Credit Rules, 2004.

2. The appellant argued that their head office in Delhi handled trading activities, and they had reversed the proportionate credit of common input services along with interest. However, the Adjudicating Authority held that the reversal at the head office did not fulfill the legal requirement of reversing Rule 6(3) at the factory level. Consequently, a demand of approximately &8377; 66,67,431/- and &8377; 9,19,502/- was confirmed, along with interest and a penalty under Rule 15 of the Cenvat Credit Rules, 2004.

3. The appellate tribunal noted that the reversal of Cenvat credit by the head office effectively nullified the credit availed by the appellant for common services used in trading. Relying on established legal principles, the tribunal found that demanding further payment under Rule 6(3) after such reversal was unjustified. Citing precedents from judicial and quasi-judicial authorities, the tribunal concluded that the impugned order was unsustainable.

4. Consequently, the tribunal set aside the order, allowing the appeal and providing consequential relief to the appellant. The decision emphasized that when proportionate credit attributable to exempted goods/services is reversed, additional demands under Rule 6(3) are not legally tenable. The judgment reaffirmed the importance of adhering to the provisions of the Cenvat Credit Rules and established legal principles in such matters.