2023 (8) TMI 1232 - AT - Central Excise

Reversal of CENVAT Credit - manufacture of dutiable as well as exempted goods - common services (input services) attributed to both dutiable and exempted goods - proportionate credit for final exempt product reversed - once the appellant have reversed the proportionate Cenvat credit on common input service attributed to the exempted final product, whether, the appellant are liable for payment of 10%/6%/5% of the value of such exempted goods? HELD THAT - This issue is no longer res-Integra as even though the reversal was made on proportionate input service attributed to the exempted goods at a latest stage along with interest the situation became as if no Cenvat credit was availed. Consequently, the demand of 10%/6%/5% cannot be sustained. In the case of PI INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE ST, SURAT-II 2023 (6) TMI 455 - CESTAT AHMEDABAD this Tribunal has held that if the assessee reverse the Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10%/5% will not sustain. In view of the catena of judgments and many more judgments cited by the Learned Counsel, the issue is no longer res-Integra as in a case where assessee avails the Cenvat credit on common input service and the same is used for exempted as well as dutiable goods and even at a later stage the assessee reverse the proportionate credit with payment of interest, if there is any delay in reversal of such credit the demand of 10%/6%/5% shall not sustain. Thus, the appellant are not liable for payment of an amount equal to 10%/6%/5% of the value of the exempted goods. Hence the same is set aside. However, the reversal of the proportionate credit along with interest paid by the appellant is correct and the same is maintained. Appeal allowed.

Summary

Issues Involved:
1. Reversal of Cenvat Credit on Common Input Services.
2. Demand of 10%/6%/5% of the Value of Exempted Goods.
3. Time Barred Demand and Suppression of Facts.

Summary:

1. Reversal of Cenvat Credit on Common Input Services:
The appellant, engaged in manufacturing both dutiable and exempted goods, availed Cenvat credit on common input services. During an audit, it was observed that the appellant availed Cenvat credit on services used for both dutiable and exempted goods. Consequently, the appellant was directed to reverse the proportionate Cenvat credit of Rs. 30,68,062/-, which they complied with along with interest payment of Rs. 8,01,333/-. The appellant filed an intimation under Section 11A (2B) of the Central Excise Act, 1944, requesting the closure of the audit objection without issuing any show cause notice for imposing a penalty. However, the department issued a letter directing the appellants to pay a penalty under Section 11A (5) of the Central Excise Act, 1944, for irregular availment of Cenvat credit.

2. Demand of 10%/6%/5% of the Value of Exempted Goods:
Despite the appellant's reversal of the proportionate Cenvat credit, a show cause notice was issued demanding Rs. 2,39,37,225/- (10%/6%/5% of the value of exempted goods) and proposing to appropriate the credit already reversed. The adjudicating authority confirmed the entire demand. The appellant argued that the demand under Rule 6(3) of the Cenvat Credit Rules, 2004, is unsustainable once the proportionate Cenvat credit is reversed along with interest. The tribunal held that the reversal of Cenvat credit along with interest makes the situation as if no Cenvat credit was availed, thus the demand of 10%/6%/5% cannot be sustained.

3. Time Barred Demand and Suppression of Facts:
The appellant contended that the demand is time barred as there was no suppression of facts. The tribunal agreed, noting that the issue of reversal of Cenvat credit under Rule 6(3) is contentious and has been subject to various judgments. Therefore, it cannot be said that the appellant had a mala fide intention to evade payment of duty. The demand for the extended period was held to be hit by limitation, and penalties imposed were deemed unsustainable.

Conclusion:
The tribunal concluded that the appellant's reversal of proportionate Cenvat credit along with interest is sufficient compliance under Rule 6(3). The demand of 10%/6%/5% of the value of exempted goods was set aside. The case was remanded to the adjudicating authority for verification of the correctness of the actual Cenvat credit attributed to exempted goods as reversed by the appellant. The appeal was disposed of by way of remand for passing a fresh de novo order.