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2016 (12) TMI 436 - AT - Central ExciseCenvat Credit - common inputs and input services - reversal under Rule 6(3) of the Cenvat Credit Rules - The appellants have contended that the formula prescribed for the period after 1.4.2011 should be adopted for the period prior to 1.4.2011 - trading activity - Held that - the issue regarding interpretation of sub-rule (5) of Rule 6 of Cenvat Credit Rules, 2004 is no longer res integra. In view of the above, respectfully following the decisions of the Tribunal on the issue, we hold that benefit of Rule 6(5) of Cenvat Credit Rules, 2004 cannot be extended in respect of trading activities. The said credit needs to be reversed in proportion to the trading turnover and the total turnover. Further, it was contention of the appellant, related to the credit availed at depot, that they are need to be divided in the proportion of the value addition happening at the depot/office level after clearance from factory in respect of manufactured goods and the value addition happening at the depot/office level in respect of traded goods. If the argument of the learned Counsel is accepted and the value addition happening at the stage of manufacture and services used therein need to be considered, then the entire Service Tax credit taken at factory also needs to be apportioned. In view of the above, the argument of the learned Counsel does not hold much water. Formula - method for determination of amount of credit to be reversed - Held that - it can be seen that even the method prescribed for the period after 1.4.2011 is inherently erroneous. - The formula prescribed for the period after 1.4.2011 does not provide reasonable estimate of the credit attributable to the exempted and dutiable activities. Furthermore the formula sought to be adopted by the appellants is not the formula prescribed for the period after 1.4.2011. In these circumstances we hold that the credit availed at various places registered as ISD needs to be apportioned in the ratio of the exempted and other sales, as has been done by the Revenue. Extended period of limitation - The appellants have not reversed any credit on their own and only when they were investigated that they have reversed as per their own calculation. There was no doubt regarding liability to reverse. In this appeal also they are contesting merely the quantification and not liability to reverse. In these circumstances the extended period has been rightly invoked. - Appeal dismissed. - Decided against the assessee.
Issues Involved:
1. Amount payable on the value of traded goods for the period 1.4.2011 to 31.12.2011 in terms of Rule 6(3)(i) of CENVAT Credit Rules, 2004. 2. CENVAT wrongly availed on input services (falling under Rule 6(5) CCR, 2004) commonly used for excisable goods and traded goods in contravention of Rule 3 of the CCR, 2004 for the period 2007-08 to 2010-11. 3. CENVAT wrongly availed on input services (not falling under Rule 6(5) CCR, 2004) commonly used for excisable goods and traded goods in contravention of Rule 3 of the CCR, 2004 for the period 2007-08 to 2010-11. Issue-wise Detailed Analysis: 1. Amount Payable on the Value of Traded Goods (1.4.2011 to 31.12.2011) Interpretation of Rule 6(3) of the CENVAT Credit Rules: The appellants sought to avail option (i) of sub-rule (3) of Rule 6 for exempted cigarettes and option (ii) for traded goods. Rule 6(3) provides a mechanism for manufacturers or service providers producing both dutiable and exempted services using common inputs and input services without maintaining separate records. The rule allows the manufacturer to choose any one of the options provided under sub-rule (3) but does not permit availing more than one option. Appellant's Argument: The appellants argued that during 1.4.2011 to 31.12.2011, they were allowed to reverse credit as per the formula prescribed under Rule 6(3A) by considering the value of traded goods as equivalent to the difference between the sale price and the cost of goods sold or ten percent of the cost of goods sold, whichever is more. They calculated the reversal amount to be ?10,94,043/-. Tribunal's Findings: The Tribunal found that the appellants had exercised the option of paying an amount equal to 5% of the value of exempted goods for cigarettes sold to the Navy. It concluded that the appellants could not exercise a different option for other goods. The Tribunal also noted that the calculation method used by the appellants was flawed as it did not include the entire credit taken in the factory. The Tribunal upheld the demand of ?2,59,80,459/- raised by the Revenue for the period 1.4.2011 to 31.12.2011. 2. CENVAT Wrongly Availed on Input Services (Rule 6(5) CCR, 2004) Rule 6(5) of CENVAT Credit Rules: Rule 6(5) allowed full credit on specified services unless used exclusively for exempted goods or services. The appellants claimed that pro-rata disallowance would not apply to common input services mentioned in Rule 6(5) when used for trading. Appellant's Argument: The appellants argued that Rule 6(5) supersedes clauses (1), (2), (3), (4), and (6) of Rule 6. They relied on CBEC Circular No. 868/6/2008-CX, which clarified that credit attributable to services mentioned in sub-rule (5) should not be taken into account for determination under Rule 6(3A). Tribunal's Findings: The Tribunal referred to previous decisions in SKF India Ltd. and Clariant Chemicals (I) Ltd., which held that Rule 6(5) could not be extended to trading activities. The Tribunal upheld the demand for reversal of credit proportionate to the trading turnover and total turnover. 3. CENVAT Wrongly Availed on Input Services (Not Falling Under Rule 6(5) CCR, 2004) Appellant's Argument: The appellants contested the method of quantification for reversing credit for trading activities. They argued that the formula prescribed for the period after 1.4.2011 should be adopted for the period prior to 1.4.2011. They claimed that the formula should consider only the value addition in trading activities, not the total turnover. Tribunal's Findings: The Tribunal found that the formula prescribed for the period after 1.4.2011 was not suitable for the period before 1.4.2011. It noted that the formula after 1.4.2011 required detailed accounts for calculating the cost of goods sold in trading, which defeated the purpose of estimation. The Tribunal upheld the Revenue's method of apportioning the common credit in the ratio of exempted and other sales. Extended Period and Penalty: The Tribunal upheld the invocation of the extended period and penalties, citing suppression of facts by the appellants. It noted that the primary responsibility of the assessee is to correctly take/reverse the credit, and the appellants had not done so until investigated. Conclusion: All appeals were dismissed, and the Tribunal upheld the demands and penalties imposed by the Revenue. (Pronounced in Court on 14.10.2016)
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