2022 (8) TMI 1153 - AT - Central Excise

Reversal of CENVAT Credit - common input service attributed to taxable as well as exempt goods - activity of manufacture of its own, manufacture on job work basis - clearance of inputs in as such condition - trading of goods on High Seas Basis - Rules 6 of Cenvat Credit Rules, 2004 - applicability of N/N. 214/86-CE dated 25.03.1986 - suppression of facts or not - time limitation. Goods on job work basis - HELD THAT - The appellant have manufactured goods on Job work Basis in terms of Notification No.214/86-CE dated 25.03.1986. In terms of Rule 3 of Cenvat Credit rules, 2004, it is specifically provided that input and input service used in the manufacture of job work goods under Notification No. 214/86-CE, the credit is admissible. In view of basis explicit provision credit of input or input service used in relation to job work goods cannot be denied - the demand related to manufacture of job work goods is clearly not sustainable. Trading of Goods on High Seas Basis - time limitation - suppression of facts or not - HELD THAT - This issue has been raised by the auditors and auditors accepting that the proportionate credit in respect of common input service attributed to Trading of Goods on High Seas Basis should be reversed and the appellant complying with the direction of CERA Audit, they have reversed the proportionate credit of Rs. 5,857/-. In this peculiar fact no further demand invoking Rule 6 can be raised. Moreover, the activity of Trading of Goods on High Seas Basis was clearly in the knowledge of the department. Therefore, no suppression of fact can be alleged against the appellant. Hence, the demand is also not sustainable on the ground of time bar. Trading of goods by way of removal of input as such - HELD THAT - Undisputedly the removal of input as such was made on payment of duty in terms of Rule 3(5) of Cenvat Credit Rules, 2004. As per this provision for all the purposes the removal of goods is treated as removal of goods of payment of duty. In this clear position by any stretch of imagination, it cannot be said that the goods cleared on payment duty is exempted goods or service. Therefore, there is no application of Rule 6(3) for payment of an amount as prescribed therein. The demand raised in terms of Rule 6 of Cenvat Credit Rules, 2004 by both the Lower Authorities is not sustainable - Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Applicability of Rule 6 of Cenvat Credit Rules, 2004 on activities including manufacture on job work basis, trading of goods on High Seas Basis, and removal of input as such.

Manufacture on job work basis:
The appellant was engaged in manufacturing Brass Rods and was registered with the Central Excise Department. The Department contended that the activities of manufacturing on job work basis, clearance of inputs as such, and trading of goods on High Seas Basis were exempted services, requiring the appellant to pay 7% under Rule 6 of Cenvat Credit Rules, 2004. The appellant argued that credit for input and input service used in job work goods is admissible, citing relevant judgments. The Tribunal held that credit for input and input service used in job work goods under Notification No. 214/86-CE cannot be denied based on explicit provisions, thus ruling the demand related to job work goods as unsustainable.

Trading of goods on High Seas Basis:
Regarding trading of goods on High Seas Basis, the appellant argued that the demand should be set aside as they had reversed the proportionate credit as directed by the audit team, and the Department was aware of the activity. The Tribunal agreed, stating that no further demand invoking Rule 6 could be raised, and the demand was not sustainable due to the knowledge of the Department. Citing the Optel Ceramic Pvt. Ltd. case, the Tribunal upheld the appellant's argument and dismissed the demand under Rule 6.

Removal of input as such:
In the case of removal of input as such on payment of duty, the appellant contended that Rule 6 of Cenvat Credit Rules did not apply since the goods were cleared on payment of duty, not as exempted goods or service. The Tribunal referred to the Mahesh Twisto Tech Ltd. case, where it was held that the removal of input as such on payment of duty should not be included in computing 6% of the value of exempted goods. Consequently, the Tribunal set aside the demand under Rule 6 for this issue as well.

In conclusion, the Tribunal found the demand raised under Rule 6 of Cenvat Credit Rules, 2004 by the Lower Authorities to be unsustainable for all three types of removal of goods. Therefore, the impugned order was set aside, and the appeal was allowed.