2024 (10) TMI 1463 - HC - Service Tax

Reversal of CENVAT Credit - 'total Cenvat credit taken' instead of 'common Cenvat credit taken' for the purpose of reversal of credit under Rule 6(3A) (c) (iii) of the Cenvat Credit Rules, 2004 - the term 'total Cenvat Credit taken' used in the provision of Rule 6(3A)(c)(iii) of Cenvat Credit Rules, 2004 is unambiguous or not - Whether the 2nd respondent is correct in placing reliance on the Stay Order of the Hon'ble Tribunal in the case of Thyssenkrupp Industries 2014 (10) TMI 476 - CESTAT MUMBAI to hold that only 'total Cenvat credit taken' should be considered in the formula under Rule 6(3A)(c)(iii) of Cenvat Credit Rules, 2004? - failure of the appellant to maintain separate account as is contemplated under Rule 6(2) of the CENVAT Credit Rules, 2004. HELD THAT - It is evident that it is the common input services taken during financial year and not the total CENVAT credit which has to be considered for reversal under Rule 6 (3A)(c)(ii) of the CENVAT Credit Rules, 2004. The distortion in the old Rules as it stood during the period in dispute in Rule 6 (3A)(c)(ii) of the CENVAT Credit Rules, 2004 was cured to ensure both manufacturers/service providers do not pay reverse/pay the amount under Rule 6 (3A)(c)(ii) of the CENVAT Credit Rules, 2004 in excess - the trading activities carried out by the appellant were exempted service within the meaning of the provisions of the CENVAT Credit Rules, 2004. The trading activities carried out by the appellant were exempted service both before and after amendment to the Rules. As far as the present dispute is concerned, Rule 2(e) of the CENVAT Credit Rules, 2004 is relevant as it stood prior to 2016. It has not undergone any change for the purpose of this inquiry. Similarly, Rule 6 of the CENVAT Credit Rules, 2004 also underwent few changes - During the period in dispute between April 2013 to March 2015, the Rule 6 of the CENVAT Credit Rules, 2004 read slightly different from how it read after the amendment vide Notification No.13/2016-CE (NT) dated 01.03.2016. The traded goods became exempted goods defined in Rule 2(d) of the CENVAT Credit Rules, 2004 and included non-excisable goods cleared for a consideration from the factory under the new dispensation. All through the period right from inception till 2016, the provisions read identically. For the Assessment Years 2011-2012, 2012-2013 and 2015- 2016, the appellant's appeal was also allowed by the Tribunal. The dispute in these two cases pertain to the Assessment Years 2013-2014 and 2014-2015 which prior to 2016. Since, the provisions have been amended to remove distortion arising out of strict application of the old format, we see no reasons to take a different stand in this appeal. The appellant shall be entitled for consequential relief if any - the Impugned Order deserves to be set aside and is accordingly set aside - Appeal allowed.

Issues Involved:
1. Interpretation of "total CENVAT credit taken" versus "common CENVAT credit taken" under Rule 6(3A)(c)(iii) of the CENVAT Credit Rules, 2004.
2. Applicability and interpretation of amendments to the CENVAT Credit Rules, particularly post-2016 changes.
3. Whether the appellant correctly applied the formula for reversal of credit under Rule 6(3A)(c)(iii).
4. The impact of prior judicial decisions and circulars on the current case.

Issue-wise Detailed Analysis:

1. Interpretation of "total CENVAT credit taken" versus "common CENVAT credit taken":
The core issue revolves around whether the term "total CENVAT credit taken" in Rule 6(3A)(c)(iii) should be interpreted as the total credit on all input services or limited to common input services used for both dutiable and exempted goods/services. The appellant argued that the credit should be confined to "common input services" to avoid distortion, while the Department maintained that the total credit should be considered. The court concluded that it is the common input services taken during the financial year and not the total CENVAT credit that should be considered for reversal under Rule 6(3A)(c)(iii), aligning with the appellant's interpretation.

2. Applicability and interpretation of amendments to the CENVAT Credit Rules:
The appellant contended that the amendments made by Notification No.13/2016-CE (NT) dated 01.03.2016, which clarified the formula and procedures under Rule 6, should be treated as clarificatory and thus retrospective. The court agreed, noting that the amendments aimed to rectify distortions in the old rules and should apply to the period in dispute, thereby supporting the appellant's stance.

3. Application of the formula for reversal of credit:
The appellant was accused of not correctly applying the formula under Rule 6(3A)(c)(iii) for calculating the amount payable due to common input services used in exempted and taxable activities. The court found that the appellant's method of confining the calculation to common input services was correct, as supported by the amendments and the purpose of the rule.

4. Impact of prior judicial decisions and circulars:
The appellant relied on previous decisions of the CESTAT and a circular from the Central Board of Excise and Customs to support their interpretation of the rules. The court acknowledged these precedents, noting that the issue was not res integra and had been addressed similarly in past cases. The court emphasized that the amendments and clarifications provided in the circulars and prior judgments should guide the interpretation, thus favoring the appellant's position.

Conclusion:
The court set aside the impugned order, allowing the appeal and granting the appellant consequential relief. The judgment underscores the importance of interpreting tax rules in a manner that aligns with legislative intent and subsequent clarifications, particularly when amendments aim to rectify ambiguities or distortions in the original provisions.

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