2023 (1) TMI 1046 - AT - Central Excise

CENVAT Credit - common input services used in taxable as well as exempt goods - whether the appellant is liable to pay 10% of the value of exempted goods when they have availed the cenvat credit on common input service used in the exempted and dutiable goods however, subsequently, the entire cenvat credit on common input service was reversed? - levy of personal penalty - suppression of facts or not - extended period of limitation - HELD THAT - This issue has been considered in various judgements as cited by the appellant wherefrom we find that once the assessee has reversed the proportionate credit attributed to the exempted goods, no demand of 10% of the value of goods can be raised by the department. Reversal of proportionate credit is one of the option provided under Rule 6(3). Therefore, it is upto the assessee which option needs to be availed. The department cannot arbitrarily choose any particular option and impose on the assessee. In the present case as per the submission of the appellant, the entire credit of Rs. 22,18,585/- has been reversed on all the common input service used in or in relation to manufacture of dutiable and exempted goods. The adjudicating authority straight away demanded 10% of the value of exempted goods. Therefore, he neither examined the reversal of cenvat credit made by the appellant nor even calculated the proportionate credit. The submission of the appellant also needs to be reconsidered whether the excess amount can be adjusted against the interest. Personal penalty - HELD THAT - Firstly the appellant company has reversed the credit accordingly, the demand is not prima facie sustainable. Consequently, since the issue relates to the interpretation of Rule 6 of Cenvat Credit Rules, 2004, malafide intention of the present employee with the appellant cannot be attributed. Therefore, considering the facts of the present case, the personal penalty imposed on the appellant is not sustainable. Hence the same is set aside. Appeal allowed in part and part matter on remand.

Summary

Issues:
1. Whether the appellant is liable to pay 10% of the value of exempted goods due to availing cenvat credit on common input services.
2. Whether the demand raised beyond the limitation period is sustainable.
3. Whether there was suppression of facts by the appellant.
4. Whether the reversal of entire credit on common input services by the appellant is valid.
5. Whether the personal penalty imposed on the appellant is sustainable.

Analysis:

Issue 1:
The main issue in this case is whether the appellant is obligated to pay 10% of the value of exempted goods for availing cenvat credit on common input services. The appellant argued that they have reversed the entire credit of common input services, thus the demand under Rule 6(3) is unjustified. The Tribunal noted that once the proportionate credit attributed to exempted goods is reversed, no 10% demand can be made. The appellant had reversed the entire credit amount, and the Tribunal emphasized that it is the appellant's choice to reverse proportionate credit. The department cannot impose a specific option on the assessee. The Tribunal found that the adjudicating authority did not properly examine the reversal of credit and the proportionate credit calculation. The matter was remanded for reconsideration.

Issue 2:
Regarding the demand raised beyond the limitation period, the appellant argued that the Show Cause Notice was issued after a significant delay, making the demand time-barred. The appellant contended that there was no suppression of facts as all details were regularly declared in monthly returns. The Tribunal agreed that the entire demand was beyond the limitation period, supporting the appellant's argument.

Issue 3:
The appellant claimed that there was no suppression of facts on their part, as all details were consistently disclosed in monthly returns. The Tribunal acknowledged this submission and concluded that there was no suppression of facts by the appellant.

Issue 4:
The appellant reversed the entire credit on common input services, exceeding the proportionate credit. The appellant argued that the excess amount could be adjusted against any interest liability. The Tribunal agreed that the reversal of entire credit needed reevaluation, and the excess amount adjustment against interest liability should be considered.

Issue 5:
Regarding the personal penalty imposed on the appellant, the Tribunal found that since the demand was not prima facie sustainable due to the credit reversal, the penalty was not justified. The Tribunal concluded that no malafide intention could be attributed to the appellant, and thus, the personal penalty was set aside.

In conclusion, the Tribunal allowed the appeals by remanding the matter for reconsideration and set aside the personal penalty imposed on the appellant.