2023 (10) TMI 425 - AT - Central Excise

Reversal of CENVAT Credit - exempt turnover - requirement of reversal under clause (i) or (ii) of sub- Rule (3) of Rule 6 of CCR? - wrong maintenance of records - Clearance of both taxable and exempted finished goods - ratios of inputs were skewed - Suppression of facts - extended period of limitation - HELD THAT - Rule 6(3) categorically starts with the words Notwithstanding anything contained in sub-rule (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, which, inter alia, include option to pay an amount equal to the specified percentage of value of exempted goods or exempted services, along with other option of reversing the proportionate amount under sub-rule (2) or maintain separate accounts for the receipt consumption in the inventory of inputs, as provided in clause (a) of subrule (2) and take credit only on inputs under sub-clause (ii) and (iv) of the said clause (a), and pay an amount as determined under sub-rule (3A) in respect of the input services. Once it is the case that proper records have not been maintained with regard to receipt of inputs and its utilization, sub-rule (3) gives option to the Assessee, and thus, Revenue cannot enforce any of the option(s) under sub-rule (3). Thus, Appellant is entitled to reverse the amount of credit as per option in clause (i) of sub-rule (3) of Rule 6 i.e., pay an amount equal to the specified percentage (5% or 6%) of the value of exempted goods, in the facts of the present case. Appellant shall be entitled to consequential benefits, in accordance with law. As the Appellants have admittedly paid the amount of Rs.1,28,95,173/- during audit/ investigation under protest, they shall be entitled to refund of the same with interest as per Rules - Appeal allowed.

Summary

Issues involved:
The issue involved in this Appeal is whether the Appellant is required to reverse Cenvat credit on their exempt turnover under clause (i) or (ii) of sub- Rule (3) of Rule 6.

Details of the Judgment:

Issue 1: Reversal of Cenvat credit on exempt turnover
The Appellant, engaged in manufacturing polyester spun yarn, benefited under Notification No.30/2004-CE, exempting goods from excise duty with a condition of non-availment of Cenvat Credit. They availed credit proportionately on inputs used in dutiable goods and reversed credit on exempt goods based on input-output ratio. The department alleged irregular availment of credit on inputs for exempt goods due to incorrect record maintenance. The Tribunal held that under Rule 6(3), the Appellant could opt to pay a specified percentage of value of exempted goods, thus allowing them to reverse credit as per clause (i) of sub-rule (3) of Rule 6.

Issue 2: Allegation of suppression and extended period of limitation
The department alleged that the Appellant's separate record maintenance indicated an intention to opt for maintaining accounts, not reversing 6% under Rule 6 of CCR, which was not acceptable as per Explanation (I) to Rule 6(3) of CCR. The Tribunal noted that the Appellant's failure to maintain proper records led to the Revenue's allegation of discrepancy in credit utilization. However, since Rule 6(3) provides options in such cases, the Appellant was entitled to choose the option under clause (i) of sub-rule (3) of Rule 6.

Final Decision:
The Tribunal allowed the Appeal, setting aside the demand raised by the department. The Appellant was directed to reverse the credit as per the specified percentage of value of exempted goods, entitling them to refund the amount paid under protest during audit/investigation, along with interest as per Rules.