2023 (1) TMI 505 - AT - Central Excise

Computation of proportionate credit determined under rule 6(3A) of the 2004 Credit Rules - by taking the value of common input services used in both taxable and exempted services OR total credit taken on all input services, including the common input services - goods sold to related persons or not - HELD THAT - Reliance placed on the decision in the case of COMMISSIONER OF CENTRAL EXCISE ST, RAJKOT VERSUS M/S. RELIANCE INDUSTRIES LIMITED 2019 (3) TMI 784 - CESTAT AHMEDABAD , the Tribunal observed that for the purpose of calculation of Cenvat credit reversal, in the formula, total Cenvat credit shall mean credit of only common input service and not of input service exclusively used for the manufacture of dutiable product on which the Cenvat credit is eligible to the respondent in its entirety. It needs to be noted that in the present case also, the appellant has not taken credit on the input and input services used in provision of exempted services. Thus, the decision of the Tribunal in M/S NATIONAL STEEL AGRO INDUSTRIES LIMITED VERSUS PRINCIPAL COMMISSIONER, CENTRAL GOODS SERVICE TAX CENTRAL EXCISE - UJJAIN 2021 (6) TMI 60 - CESTAT NEW DELHI rendered for the period prior to 2016 will apply to the facts to the present case, where it was held that Since the appellant has followed Rule 6(2) and has not taken any CENVAT credit on the input services which were used exclusively for providing exempted services, the formula under Rule 6(3A) can only be used to only proportionately divide the credit taken on common input services and deny credit to the extent it is attributable to the exempted service viz., trading during the periods relevant to both appeals, viz., 2015-16 and April 2016 to June 2017. The order passed by the Commissioner (Appeals), therefore, deserves to be set aside to the extent it has confirmed the demand attributed to input services used in clearance of exempted products with penalty, and is set aside - appeal allowed.

Summary

Issues Involved:
Computation of proportionate credit under rule 6(3A) of the 2004 Credit Rules

Detailed Analysis:

1. Background and Facts:
The appeal was filed challenging the order passed by the Commissioner (Appeals) regarding the confirmation of demand attributed to input services used in clearances of exempted products under the CENVAT Credit Rules, 2004. The appellant, a joint venture between GAIL and HPCL, is engaged in the manufacture of Compressed Natural Gas (CNG) and procures natural gas from GAIL for this purpose. The appellant availed credit on input services used in the manufacture of CNG but not for trading of Piped Natural Gas (PNG).

2. Audit Findings and Show Cause Notice:
During audits, it was observed that the appellant was clearing CNG to HPCL, qualifying as 'goods sold to related persons,' and the duty was to be re-quantified. Additionally, it was found that the appellant had not correctly reversed proportionate credit under the 2004 Credit Rules, resulting in short reversal recoverable with interest and penalty. Subsequently, a show cause notice was issued proposing recovery of central excise duty and CENVAT credit.

3. Appeal and Arguments:
The appellant challenged the order, focusing on the computation of proportionate credit under rule 6(3A) of the 2004 Credit Rules. The appellant's counsel argued that a previous Tribunal decision supported their position, emphasizing the distinction between dutiable and exempted goods/services under the rules.

4. Tribunal's Analysis and Decision:
The Tribunal analyzed the relevant provisions of the 2004 Credit Rules and previous decisions to understand the formula for determining proportionate credit. Referring to the case law, the Tribunal highlighted the importance of maintaining separate records for dutiable and exempted goods/services. It emphasized that the appellant had followed the rules correctly by not taking credit for input services used exclusively for exempted services.

5. Conclusion and Outcome:
Based on the analysis, the Tribunal concluded that the appellant's approach in following the rules was correct, and the demand attributed to input services used in clearance of exempted products was not valid. Therefore, the order of the Commissioner (Appeals) confirming this demand was set aside, and the appeal was allowed with consequential benefit to the appellant.

In summary, the judgment focused on the correct interpretation and application of rule 6(3A) of the 2004 Credit Rules in computing proportionate credit for input services used in both dutiable and exempted goods/services, ultimately ruling in favor of the appellant based on their compliance with the rules and relevant case law.