2020 (9) TMI 503 - AT - Central Excise

CENVAT Credit - inability to maintain separate accounts for consumption of common inputs and inputs services - scope of rule 6(3) of CENVAT Credit Rules, 2004 - two options under the Rules, mutually exclusive or not? - HELD THAT - It is clear from a reading of CENVAT Credit Rules 2004 that rule 6(1) and rule 6(2) complement each other and are in contradistinction with rule 6(3) which, qualified by the non obstante clause, operates on its own. The latter is unambiguously clear in conferring the privilege of exercising of option to the assessee. It was, therefore, not appropriate for the adjudicating authority to resort to computation that yielded higher revenue. It would be appropriate for the adjudicating authority to consider the matters afresh after giving an opportunity to the appellant to furnish the computation preferred by them but strictly in accordance with the provisions of rule 6(3) of CENVAT Credit Rules, 2004. The claim of Learned Senior Counsel that the plants should be deemed as separate registrations is not acceptable in law. The appellant is at liberty to raise the submissions pertaining to retrospective application of the revised computation methodology, as well as the claim of certain clearances being excluded from the definition of exempted goods , before the adjudicating authority. Matters remanded back to the adjudicating authority - appeal allowed by way of remand.

Summary

Issues involved:
1. Dichotomous neutralization of CENVAT credit availed on inputs and inputs services for dutiable and exempted goods.
2. Maintenance of separate accounts for consumption of common inputs and inputs services.
3. Breach of CENVAT Credit Rules, 2004 by resorting to both options simultaneously.
4. Additional liability due to non-inclusion of the value of inputs supplied free of cost by the customer.
5. Retrospective application of the amended rule 6 of CENVAT Credit Rules, 2004.
6. Authority's discretion in directing neutralization of CENVAT credit.
7. Consideration of plants as separate factories for CENVAT credit purposes.
8. Exclusion of certain clearances from the definition of exempted goods.

Analysis:
1. The judgment dealt with two appeals concerning demands totaling ?13,48,01,326 for breaching CENVAT Credit Rules, 2004 by neutralizing credit on inputs and inputs services for dutiable and exempted goods simultaneously. The appellant argued that plants supplying to defense organizations should be considered separate factories. The respondent contended that the appellant failed to maintain separate accounts, breaching the rules. The Tribunal found the authority's computation yielding higher revenue inappropriate and remanded the matter for fresh consideration, rejecting the separate factory argument.

2. The issue of additional liability of ?1,56,19,370 due to non-inclusion of the value of inputs supplied free of cost was raised. The appellant argued for retrospective application of the amended rule 6, citing legal precedents. The Tribunal directed a fresh adjudication, allowing the appellant to present arguments on the revised computation methodology and the exclusion of certain clearances from exempted goods, while keeping all other issues open for disposal.

3. The judgment emphasized the importance of maintaining separate accounts for inputs and inputs services under CENVAT Credit Rules. The authority's failure to extend the benefit of the amended rule retrospectively was criticized, and the Tribunal ordered a reevaluation of the matter, giving the appellant an opportunity to present preferred computations in accordance with the rules.

4. The Tribunal highlighted the discretion of the authority in directing neutralization of CENVAT credit and clarified that the plants should not be deemed separate registrations for CENVAT purposes. The judgment emphasized the need for adherence to the provisions of rule 6(3) of CENVAT Credit Rules, 2004 in computing liabilities, setting aside the impugned orders and remanding the matters for de novo adjudication.

5. Overall, the judgment focused on ensuring compliance with CENVAT Credit Rules, rectifying computation errors, and providing the appellant with a fair opportunity to present their case before the adjudicating authority. The issues of separate accounts maintenance, retrospective application of rule amendments, and the exclusion of certain clearances from exempted goods were central to the Tribunal's decision, highlighting the importance of procedural adherence and legal clarity in tax matters.