2023 (2) TMI 1343 - AT - Central Excise

Recovery of CENVAT Credit with interest and penalty - amount of credit attributable to exempted services (trading activities) under Rule 6(3A) of the CENVAT Credit Rules, 2004 - non-maintenance of separate accounts - determination of the value of factors M , N P in the formula prescribed as per the Rule 6 (3A) for the determination of the proportionate credit to be reversed in respect of the common input services used for providing the exempted services trading activities and used in manufacture of the dutiable goods - HELD THAT - The issue has been settled by the tribunal in the case of E-Connect Systems 2020 (11) TMI 282 - CESTAT NEW DELHI holding that 'It would be clear from a conjoint reading of sub-rules 6(1), (2) and (3) of Rule 6 that the total Cenvat credit for the purpose of formula under Rule 6(3A) is only total Cenvat credit of common input service and cannot include Cenvat credit on input service exclusively used for the manufacture of dutiable goods.' In case of National Steel Agro Industries Ltd. 2021 (6) TMI 60 - CESTAT NEW DELHI , where it was held that 'The adjudicating authority has erred in (a) taking the total turnover of traded goods as the value of trading service instead of following Explanation 1(c) to Rule 6 to calculate the value of trading service; (b) For the periods covered in both appeals, the adjudicating authority has erred in reckoning the total credit taken instead of credit on common input services in calculating the amount of credit required to be reversed.' Undisputedly and admittedly appellant has reversed/ paid the amount of the CENVAT Credit attributable to trading activities as per the prescribed formula in Rule 6(3A) as interpreted in the above referred orders. The fact of reversal is also noted in the impugned orders. There are no merits in the impugned order on the merits of demand. As the demand is set aside there can be no question for interest or penalty. Hence the impugned orders are set aside. Appeal allowed.

Issues Involved:

1. Whether the appellant correctly determined and paid the amount of credit attributable to exempted services under Rule 6(3A) of the CENVAT Credit Rules, 2004.
2. Whether the total CENVAT credit for the purpose of formula under Rule 6(3A) includes only common input services or all input services.
3. Whether the appellant's method of reversing CENVAT credit was in accordance with the law.
4. Whether the appellant was liable to pay interest and penalty under the provisions of the CENVAT Credit Rules, 2004 and Central Excise Act, 1944.

Detailed Analysis:

1. Determination of Credit Attributable to Exempted Services:

The core issue was whether the appellant correctly determined and paid the amount of credit attributable to exempted services, specifically trading activities, which are considered exempted services. The appellant opted to pay the amount as determined under Rule 6(3A) due to their inability to maintain separate accounts for input services used in exempted and taxable services. The tribunal examined whether the appellant had correctly calculated the amount of credit to be reversed using the formula provided in Rule 6(3A)(c)(iii), which involves factors "M", "N", and "P". The tribunal concluded that the appellant had reversed the credit as per the principles laid down in previous tribunal decisions, thus correctly determining the credit attributable to exempted services.

2. Inclusion of Total CENVAT Credit in the Formula:

The dispute centered around whether the "total CENVAT credit" in the formula should include only common input services or all input services, including those used exclusively for taxable services. The tribunal referred to previous decisions, notably Reliance Industries Ltd. and E-Connect Solutions (P) Ltd., which clarified that the total CENVAT credit for the purpose of the formula should only include common input services and not those used exclusively for taxable services. This interpretation aligns with the objective of the rule, which is to deny credit only for the portion attributable to exempted services.

3. Method of Reversing CENVAT Credit:

The appellant had reversed the CENVAT credit attributable to trading activities based on their internal calculations and as per the prescribed formula. The tribunal found that the appellant's method of reversal was consistent with the legal provisions and previous tribunal rulings. The tribunal noted that the appellant had complied with the requirement to reverse credit on common input services, thereby fulfilling their obligation under Rule 6(3A).

4. Liability for Interest and Penalty:

Given that the tribunal found no merit in the demand for reversal of CENVAT credit, the question of liability for interest and penalty did not arise. The tribunal set aside the impugned orders, thereby nullifying any demand for interest or penalty.

Conclusion:

The tribunal allowed the appeals, setting aside the impugned orders. The appellant was found to have correctly reversed the CENVAT credit as per the applicable legal provisions, and the demand for additional reversal, interest, and penalty was deemed unsustainable. The judgment reinforced the interpretation that only common input services should be considered in the formula for reversal of credit under Rule 6(3A).

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