2023 (4) TMI 1389 - AT - Central Excise

Recovery of CENVAT credit availed in respect of the traded goods with interest and penalty - correct formula that reflects the Rule 6 of Cenvat credit rules, 2004 for reversal of Cenvat credit used for manufacture of provided services exempted and taxable services - requirement to reverse any additional amount from the credit received from the input services. What is the correct formula that reflects the Rule 6 of Cenvat credit rules, 2004 for reversal of Cenvat credit used for manufacture of provided services exempted and taxable services? - HELD THAT - The formula adopted by the Appellant to arrive at the amount of reversal in terms of Rule 6(3A) of CENVAT Credit Rules, 2004 is correct. Hence, there is no short reversal by the Appellant - Reliance placed in M/S. MERCEDES BENZ INDIA (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015 (8) TMI 24 - CESTAT MUMBAI where it was held that ' Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services.' Whether the appellant was required to reverse any additional amount from the credit received from the input services? - HELD THAT - During the period in dispute, the Appellant reversed an amount of Rs. 19,03,11,045/- at the ISD level before the distribution of the credit. However, if the allegation of the department is accepted and the Appellant is required to make reversal at the manufacturing unit level, the Appellant would have made the reversal of Rs. 4,78,15,154/- and the Noida unit would have reversed Rs. 11,06,86,024/- accordingly the total reversal of the Appellants would have been Rs. 15,58,01,178/- - The figures are certified by an independent chartered accountant and the certificate is enclosed along with the appeal memo. The certificate issued by the certificate given by the Chartered Accountant prused and it is convinced that Appellant at ISD level has in-fact reversed excess CENVAT credit. That being so the demand of reversal again from the recipient manufacturing units of the appellant cannot be justified, for the reason no inadmissible credit was distributed by the ISD. Conclusion - i) The formula adopted by the Appellant to arrive at the amount of reversal in terms of Rule 6(3A) of CENVAT Credit Rules, 2004 is correct. Hence, there is no short reversal by the Appellant. ii) Appellant at ISD level has in-fact reversed excess CENVAT credit. The demand of reversal again from the recipient manufacturing units of the appellant cannot be justified, for the reason no inadmissible credit was distributed by the ISD. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses the following core issues:

• What is the correct formula under Rule 6 of the Cenvat Credit Rules, 2004, for the reversal of Cenvat credit used for the manufacture of exempted and taxable services?
• Whether the appellant was required to reverse any additional amount from the credit received from input services?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Correct Formula for Reversal of Cenvat Credit

• Relevant legal framework and precedents: The case revolves around Rule 6(3A) of the Cenvat Credit Rules, 2004, which outlines the formula for reversing Cenvat credit. The appellant referenced several precedents, including decisions from M/s Mercedes Benz India Pvt Ltd. and Reliance Industries Limited, to support their formula.
• Court's interpretation and reasoning: The Tribunal noted that the matter was no longer res integra, meaning it had been settled by prior decisions of the Tribunal and various High Courts. The appellant's method for calculating the reversal was deemed consistent with these decisions.
• Key evidence and findings: The appellant followed the prescribed formula under Rule 6(3A) and filed the necessary declarations. They argued that the formula they used was correct, as supported by amendments and retrospective clarifications through various precedents.
• Application of law to facts: The Tribunal found that the appellant's method of calculating the reversal was correct and in line with legal precedents and amendments, thus negating the claim of short reversal.
• Treatment of competing arguments: The Tribunal considered the department's argument but found the appellant's reliance on precedents and legal amendments persuasive.
• Conclusions: The Tribunal concluded that the appellant's formula for reversal was correct, and there was no short reversal of Cenvat credit.

Issue 2: Requirement for Additional Reversal of Credit

• Relevant legal framework and precedents: Rule 7 of the Cenvat Credit Rules addresses the distribution of credit by Input Service Distributors (ISD). The department argued that reversal should occur at the manufacturing unit level, not the ISD level.
• Court's interpretation and reasoning: The Tribunal found that the reversal at the ISD level was adequate and that requiring additional reversal at the manufacturing unit level was unnecessary, as it would not result in any revenue loss to the government.
• Key evidence and findings: The appellant had reversed an amount of Rs. 19,03,11,045/- at the ISD level, which was more than what would have been required if the reversal was made at the manufacturing unit level.
• Application of law to facts: The Tribunal applied Rule 7(g), which states that the provisions of Rule 6 apply to units manufacturing goods or providing output services, not to the ISD.
• Treatment of competing arguments: The Tribunal dismissed the department's argument that additional reversal was necessary, as the ISD's reversal was already in excess.
• Conclusions: The Tribunal set aside the demand for additional reversal, finding that the appellant had already reversed excess Cenvat credit at the ISD level.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The matter is no longer res integra and has been decided by this Tribunal and various High courts as referred to by the learned counsel."
• Core principles established: The Tribunal established that the correct application of Rule 6(3A) allows for the reversal of Cenvat credit at the ISD level without necessitating additional reversal at the manufacturing unit level if no revenue loss occurs.
• Final determinations on each issue: The appeal was allowed, with the Tribunal concluding that the appellant's method for reversal was correct and that no additional reversal was required.

The Tribunal's decision emphasizes the importance of adhering to established legal frameworks and precedents, ensuring that credit reversals align with both statutory provisions and judicial interpretations. The judgment underscores the necessity of a comprehensive understanding of the rules governing Cenvat credit reversals and the role of ISDs in the distribution of such credits.