2014 (10) TMI 476 - AT - Central Excise

Reversal of CENVAT Credit - The short question for consideration is the factor P mentioned in sub-rule (3A) of Rule 6. Should it be the value of common input services credit as contended by the appellant or should it be the value of total Cenvat credit taken on input services. - Held that - From a reading of the Rule 6(3A), three factors are required for determination of the Cenvat Credit attributable to exempted goods and exempted services. The first factor is M which denotes the total value of exempted services provided plus the total of exempted goods manufactured. The second factor is N which denotes the total value of taxable and exempted services provided plus the total value of dutiable and exempted goods manufactured and the third factor is P which denotes the total Cenvat Credit taken on input services during the financial year. It should be noted that P denotes the total Cenvat Credit taken on input services during the financial year and not the total of the Cenvat Credit taken on common input services. This is also evident from other two factors, namely, M , N which provides for taking into account, the total of the value of services provided and the total value of goods manufactured. The same principle applies in the case of determination of provisional credit required to be reversed every month. If the appellant had chosen not to avail Cenvat Credit on common input services, the liability would have been only ₹ 2.07 crore and inasmuch as the appellant has already reversed an amount of ₹ 62 lakhs (approximately), we direct the appellant to make a pre deposit of ₹ 1.40 crore within a period of eight weeks and report compliance by 18/09/2014. On such compliance, pre deposit of the balance of dues adjudged against the appellant shall stand waived and recovery thereof stayed during the pendency of the appeal - Partial stay granted.

Summary

Issues:
- Appeal against duty demand and penalty imposed by Commissioner of Central Excise, Pune regarding Cenvat credit availed by the appellant.
- Interpretation of Rule 6 of the Cenvat Credit Rules, 2004 concerning reversal of Cenvat credit on common input services.
- Dispute over the calculation of the factor "P" in sub-rule (3A) of Rule 6 for determining Cenvat Credit attributable to exempted goods and services.

Analysis:

Issue 1: Appeal against duty demand and penalty:
The appeal and stay petition were filed against the order-in-original passed by the Commissioner confirming a duty demand of Rs. 8,62,06,300/- along with penalty against the appellant for availing ineligible Cenvat credit. The appellant contended that the reversal of credit should be based only on common input services and not total Cenvat credit taken on input services. The Counsel argued that the liability to reverse credit should be significantly lower than the amount demanded. The Tribunal considered the submissions and directed the appellant to make a pre-deposit of Rs. 1.40 crore within eight weeks, with the balance of dues waived upon compliance.

Issue 2: Interpretation of Rule 6 of Cenvat Credit Rules:
The Counsel for the appellant argued that only the Cenvat Credit attributable to common input services should be considered for reversal under Rule 6(3A) of the Cenvat Credit Rules. On the other hand, the Commissioner (AR) contended that the total Cenvat credit taken on input services during the financial year should be the basis for determining the reversal amount. The Tribunal analyzed the provisions of Rule 6 and concluded that the total Cenvat credit taken on input services should indeed be considered, as per the formula prescribed in sub-rule (3A). The Tribunal emphasized that statutory interpretation should adhere strictly to the language used in the statute, and any anomalies should be addressed through legislative amendments rather than judicial interpretation.

Issue 3: Calculation of factor "P" in sub-rule (3A) of Rule 6:
The key contention revolved around the interpretation of factor "P" in sub-rule (3A) of Rule 6 for determining the Cenvat Credit attributable to exempted goods and services. The Tribunal clarified that factor "P" denotes the total Cenvat credit taken on input services during the financial year and not just on common input services. The Tribunal highlighted that the formula in Rule 6(3A) clearly specifies the factors to be considered for determining the credit reversal amount, and factor "P" should be calculated based on total Cenvat credit taken on input services. The Tribunal's decision was based on a strict interpretation of the statute and the formula provided in Rule 6(3A).

In conclusion, the Tribunal upheld the duty demand and penalty imposed by the Commissioner, directing the appellant to make a pre-deposit and stay the recovery of the balance during the appeal process. The judgment emphasized adherence to statutory provisions and the prescribed formula for determining Cenvat credit reversals, clarifying the interpretation of Rule 6 of the Cenvat Credit Rules.