2016 (12) TMI 1379 - AT - Central Excise

Reversal of credit - Subrule (3A) (a) of Rule 6 of Cenvat Credit Rules, 2004 - Rule 6(3)(ii) - whether the appellant is reqiured to reverse CENVAT credit availed under Rule 6(3)(ii), as claimed by the Revenue? - Held that - as per amended Rule 6(3) (i) & (ii) read with subrule (3A), the option is available to the assessee whether to pay 10% of the value of the exempted goods or to pay equivalent Cenvat credit attributable to the input used in the exempted goods. The department has no say that which option has to be availed by the assessee. In the present case the appellant have opted for payment of proportionate Cenvat credit in terms of Rule 6(3)(ii) of Cenvat Credit Rules, 2004, which in my considered view is not incorrect. At the most if any lapse is there that is, appellant have not given written option to the department. In my view it is only a procedural lapse and for such procedural lapse, appellant cannot be fastened with demand of 10% of the exempted goods - the payment made by the appellant themselves equivalent to the Cenvat credit attributable to the input used for the exempted goods is in order. therefore no further demand could have been made from the appellant. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the appellant was required to follow the procedure under Rule 6(3)(i) of Cenvat Credit Rules, 2004, instead of Rule 6(3)(ii).
2. Whether the appellant's failure to exercise the option in writing under Rule 6(3A)(a) invalidated their chosen method of reversing Cenvat credit.
3. Whether the appellant's payment of proportionate Cenvat credit attributable to the input used in exempted goods was sufficient to meet legal requirements.
4. Applicability of the judgments and precedents cited by both the appellant and the respondent.

Issue-wise Detailed Analysis:

1. Procedure under Rule 6(3)(i) vs. Rule 6(3)(ii):

The appellant reversed the Cenvat credit attributable to the input used in the manufacture of exempted goods on a proportional basis, opting for Rule 6(3)(ii). The department contended that the appellant should have followed Rule 6(3)(i), requiring the reversal of 10% of the value of exempted goods. The Tribunal found that the appellant had the right to choose between the options provided under Rule 6(3) and that the department could not insist on a particular option. The Tribunal emphasized that the appellant's choice to reverse proportionate Cenvat credit under Rule 6(3)(ii) was not incorrect.

2. Failure to Exercise Option in Writing:

The appellant did not exercise the option in writing as required by Rule 6(3A)(a). The Tribunal considered this a procedural lapse and not a substantive violation that would invalidate the appellant's chosen method. The Tribunal noted that procedural lapses should not result in the imposition of the more onerous requirement of reversing 10% of the value of exempted goods. The Tribunal referenced the case of M/s Mercedes Benz India (P) Limited, which supported the view that procedural lapses should not lead to such demands.

3. Sufficiency of Proportionate Cenvat Credit Payment:

The appellant argued that their method of reversing proportionate Cenvat credit was consistent with the law and that they had, in fact, reversed more than the required amount during a specific period. The Tribunal agreed, noting that the appellant had reversed an amount in excess of ?28,54,048/- compared to the calculated 10%, which exceeded the demand of ?25,65,594/-. The Tribunal concluded that no further demand could be made if the appellant had already reversed the appropriate amount of Cenvat credit.

4. Applicability of Judgments and Precedents:

The appellant cited various judgments to support their case, including Vinir Engineering Pvt. Ltd. and Divya Enterprises Ltd., which allowed for adjustments in similar circumstances. The Tribunal found these judgments relevant and supportive of the appellant's position. Conversely, the respondent cited the case of Commissioner of C. Ex. Thane-I Vs. Nicholas Piramal (India) Ltd, which the Tribunal found inapplicable as it pertained to un-amended provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2004, unlike the present case involving amended provisions.

Conclusion:

The Tribunal concluded that the appellant's method of reversing proportionate Cenvat credit was in accordance with the law, despite the procedural lapse of not exercising the option in writing. The demand for 10% reversal of the value of exempted goods was set aside, and the appeal was allowed with consequential relief. The Tribunal emphasized that procedural lapses should not result in undue financial burdens on the assessee and that the appellant had complied with the substantive provisions of Rule 6(3)(ii) read with sub-rule (3A).

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