2024 (10) TMI 502 - AT - Central Excise

CENVAT Credit - input services used exclusively in the manufacture of the dutiable goods - required to be included in the numerator for apportioning the common credit between the exempted service (trading) and dutiable goods or not - Extended period of limitation - interest and penalty. CENVAT Credit - HELD THAT - This issue is no more res integra as it has been held that the CENVAT Credit, which pertains to input services exclusively used in dutiable goods, is not required to be included in the total CENVAT Credit for apportionment between exempted services and dutiable goods. It has been held that for apportionment of CENVAT Credit, only such credit which was availed on input service used commonly in exempted service and dutiable goods has to be taken into consideration. In order to bring parity with the underlying objective of Rule 6, Rule 6(3A) of the Credit Rules was amended vide Notification No. 13/2016-CE (NT) dated 01.03.2016, effective from 01.04.2016, by substituting Rule 6(3A) (b)(ii) of the Credit Rules, to consider only common input services and not total input service credit, for the purpose of computing the amount of reversal - It is observed that such amendment in Rule 6(3A) by virtue of substitution was clarified by the Board vide TRU Circular No. 334/8/2016-TRU dated 29.02.2016, to apply retrospectively. The clarification clearly mentioned that the provisions of Rule 6 providing for reversal of Credit in respect of input services used w.r.t. exempted goods/services, is being redrafted with the objective to simplify and rationalize the same without altering the established principles of reversal of such credit. The modality adopted by the Appellant for reversal of credit on proportionate basis is in accordance with the provisions of Rule 6(3A). Hence, the impugned order by upholding the demand on incorrect understanding of provision is erroneous and not sustainable. Extended period of limitation - HELD THAT - There is no suppression of facts in the instant case. It is observed that the Appellant periodically intimated the department about their selection of option to reverse Cenvat credit under Rule 6(3A) of CCR. They have also intimated the department about the amount of credit reversed by them - Hence the department already had the knowledge of the said transactions. Moreover, mere fact that the dispute on eligibility of impugned credit is disputed by the department does not ipso facto mean the fact was suppressed - the extended period of limitation is not invokable. Imposition of penalty - recovery of interest - HELD THAT - Since the demand of Cenvat Credit itself is not sustainable, penalty is not imposable and consequently, no interest is also recoverable. The impugned order is not sustainable and is accordingly set aside - Appeal allowed.

Summary

Issues Involved:

1. Whether the CENVAT Credit availed on input services used exclusively in the manufacture of dutiable goods should be included in the numerator for apportioning the common credit between exempted services and dutiable goods.
2. Interpretation of the term "total Cenvat credit" in Rule 6(3A)(b)(ii) of the CENVAT Credit Rules, 2004.
3. Applicability of the extended period of limitation for issuing the Show Cause Notice (SCN).
4. Imposition of penalty and recovery of interest.

Detailed Analysis:

1. Inclusion of CENVAT Credit in Apportionment:

The core dispute revolves around whether the CENVAT Credit availed on input services used exclusively for manufacturing dutiable goods should be included in the numerator for apportioning the common credit between exempted services (trading) and dutiable goods. The Tribunal found that the CENVAT Credit related to input services used exclusively in the manufacture of dutiable goods is not required to be included in the "total CENVAT Credit" for apportionment purposes. This position aligns with the established legal principle that only the credit availed on input services used commonly in both exempted services and dutiable goods should be considered for apportionment. The Tribunal relied on several precedents, including E-CONNECT SOLUTIONS (P) LTD. and Reliance Industries Ltd., which clarified that the total Cenvat credit for the purpose of the formula under Rule 6(3A) is only the total Cenvat credit of common input services.

2. Interpretation of "Total Cenvat Credit":

The Tribunal addressed the Department's interpretation of "total Cenvat credit" under Rule 6(3A)(b)(ii), which included credit for services used exclusively in taxable services. The Tribunal clarified that such an interpretation is incorrect. The rule intends to include only common input services in the total Cenvat credit and not those used exclusively for manufacturing dutiable goods. This interpretation was supported by amendments and clarifications, including a Notification dated March 1, 2016, and a Tax Research Unit Circular, which confirmed that only common input services should be considered for computing the amount of reversal.

3. Applicability of Extended Period of Limitation:

The Tribunal found that the extended period of limitation is not applicable in this case. The demand for Rs. 6,19,010/- for the period from April 2010 to March 2013 was deemed barred by limitation, as the SCN was issued beyond the normal period of 18 months from the relevant date. The Tribunal noted that the Appellant had filed the necessary returns and communicated their credit reversal method to the Department, negating any claim of suppression of facts.

4. Imposition of Penalty and Recovery of Interest:

Given that the demand for Cenvat Credit was found unsustainable, the Tribunal held that the imposition of penalties and recovery of interest was also unwarranted. The Appellant's regular submissions and transparency with the Department further supported this conclusion.

Conclusion:

The Tribunal set aside the impugned order, ruling that the Appellant's method of credit reversal was in accordance with Rule 6(3A) of the CENVAT Credit Rules. The appeal was allowed with consequential relief, affirming that neither the demand nor the penalties and interest were justified.