2022 (1) TMI 157 - AT - Central Excise

Reversal of CENVAT Credit - common inputs/ common input services used by the appellant in production of sponge iron and in production /generation of electricity as sold - dutiable as well as exempted goods - non-maintenance of separate records - HELD THAT - Admittedly the electricity so generated by the appellant has being used captively as well as sold to other buyers and on such sales no duty was paid by the noticee because of the exemption for generation of electricity. The availment of CENVAT Credit on the inputs / input services used by the appellant definitely shall be governed by Rule 6 of CENVAT Credit Rules, 2004. Since the separate account was not maintained by the appellant under Rule 6(3) of CENVAT Credit Rules, 2004 will be applicable in terms whereof either 5% of the value of exempted goods and exempted service was to be paid or such an amount as is calculated in terms of Rule 6(3A)( c) (i) with respect to calculating amount of CENVAT Credit on imports used in or in relation to manufacture of exempted goods and Rule 6(3)(A)(C)(iii) for an amount attributable to input service used in or in relation to manufacture of exempted goods - only such common inputs were used, the value of such common inputs was to be used in said computation as were used for generation of such amount of electricity which was sold outside. Further a clarification in Chapter 5 of CBEC Board Circular No. 754/70/2003 CX dated 9.10.2003 says that CENVAT Credit is also admissible in respect of amount of inputs contained in waste/ refuse of by product. Similarly, the CENVAT Credit is not to be denied if the inputs are used in intermediate of the final product even if such intermediate is exempted from payment of duty. The basic idea is that CENVAT Credit is admissible so long as the input are used in or in relation to manufacture of final product whether directly or indirectly and such final products have been cleared. When the calculation arrived at by the Department and confirmed vide the order under challenge is perused (in para 18.3 of show cause notice), it is observed that the value of coal (inputs ) used in power plant and value of Coal handling service (input service) in terms of Rule 6(3A)(c ) (i) and 6 (3A(iii) has to be the value as shown in Column 4 of such table in para 18.3 of the show cause notice. However, the value of total inputs / input service as mentioned in para 1 of the said table has been taken by the Investigating Authority and has been confirmed by the Commissioner (Appeals). The calculation based upon total value of input / input service is held to be wrong - no penalty can be imposed under Section 11AC of Central Excise Act, 1944 in respect of alleged non payment of the amount due 6(3) CENVAT Credit Rules, 2004 - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Calculation of CENVAT Credit on inputs and input services used for manufacturing sponge iron and electricity sold outside.

Analysis:
The case involves the appellant engaged in manufacturing sponge iron and generating power, availing CENVAT credit on inputs, input services, and imports. The dispute arose when the department observed discrepancies in the reversal of credit on inputs and input services related to the generation of electricity sold outside the factory. The department issued a show cause notice for the recovery of the alleged short-reversed amount, leading to subsequent orders confirming the demand. The appellant challenged these orders before the Tribunal.

The primary issue revolves around the correct calculation of CENVAT Credit on common inputs and input services used for manufacturing both sponge iron and electricity sold externally. The department argued that Rule 6 of CENVAT Credit Rules, 2004 should apply, considering the appellant's production of both dutiable and exempted goods. The appellant contended that the calculation was erroneous, particularly under Rule 6(3A), as the total imports were incorrectly used in determining the credit availed.

The Tribunal analyzed the facts, noting that the appellant had reversed a portion of the credit related to input services and inputs used for electricity generation. It observed that Rule 6 required a proportionate reversal of credit for exempted goods, such as electricity, based on a specific formula. The Tribunal found discrepancies in the department's calculation, emphasizing that only common inputs used for electricity generation and sales should be considered, not the total inputs used for both products.

Furthermore, the Tribunal referenced precedents and circulars to support its decision. It highlighted that the CENVAT Credit Rules apply to common inputs and input services, excluding penalties for alleged non-payment when credit reversals were made. Ultimately, the Tribunal set aside the order under challenge, allowing the appeal in favor of the appellant. The judgment emphasized the correct interpretation and application of Rule 6 in determining CENVAT Credit for inputs and input services used in the production of sponge iron and electricity sold externally.