2017 (2) TMI 769 - AT - Central Excise

Reversal of CENVAT credit - Rule 6(3)(b) of the CCR, 2002 - appellants maintained separate accounts in regard to common inputs used for manufacture of exempted and dutiable products, no such separate accounts was maintained in respect of input services - Held that - the period involved is prior to 01/04/2008 wherein the amendment was brought forth by Finance Act, 2010 by giving an option to the assessee to reverse the credit attributable to the inputs/input services used in the manufacture of exempted goods within a period of 6 months from the date of which the said Finance Bill receives the assent of the President. The appellant has not filed an application for opting to reverse the credit. However, even prior to this amendment, the appellant has reversed the credit - the Department has force upon the assessee to pay 10% of the value of clearances even though the assessee has reversed the credit attributable to the input services used for manufacture of exempted goods. Demand unsustainable - appeal allowed - decided in favor of appellant.

Issues:
1. Applicability of Rule 6(3)(b) of the CENVAT Credit Rules, 2002 on the appellant.
2. Benefit of the amendment brought by Finance Act, 2010 for reversing credit attributable to inputs/input services used in the manufacture of exempted goods.
3. Requirement of filing an option before the jurisdictional Commissioner for reversing credit.
4. Interpretation of Rule 6(3A) regarding the intimation of option exercised by the manufacturer.
5. Dispute over the quantification of proportionate credit to be reversed.
6. Legality of the demand raised by the Department.

Analysis:
1. The issue revolved around the applicability of Rule 6(3)(b) of the CENVAT Credit Rules, 2002 on the appellant, who was engaged in the manufacture of bulk drugs and formulations. The appellant was clearing both dutiable and exempted goods without maintaining separate accounts for input services. A show-cause notice was issued for payment under Rule 6(3)(b), which was confirmed by the original authority and upheld by the Commissioner(Appeals).

2. The appellant contended that they had reversed the credit as per the formula laid down in a previous judgment and the subsequent amendment brought by Finance Act, 2010. Despite this, the Department insisted on payment under Rule 6(3)(b). The Tribunal referred to relevant judgments and held that the appellant was entitled to reverse the credit attributable to input services used in the manufacture of exempted goods, and the demand raised was unsustainable.

3. The Department argued that the appellant did not file an option before the jurisdictional Commissioner for reversing credit as per the amendment. The Tribunal noted that the appellant had reversed the credit prior to the amendment and produced a Chartered Accountant certificate. The failure to file an application did not negate the appellant's compliance with the rules.

4. The Tribunal analyzed Rule 6(3A) regarding the intimation of the option exercised by the manufacturer. It was held that the requirement to intimate the department about the option exercised was procedural and did not automatically force the appellant to pay under Rule 6(3)(b) in case of failure to intimate.

5. The dispute over the quantification of the proportionate credit to be reversed was addressed, with the Tribunal finding that the appellant had calculated and reversed the credit, which was not disputed by the Revenue. The demand raised by the Department was deemed not legal and proper.

6. The Tribunal concluded that the demand was unsustainable, setting aside the impugned order and allowing the appeal with consequential reliefs. The appellant was not forced to pay 10% of the value of clearances, as they had complied with the obligations under the rules.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both sides, relevant legal provisions, and the Tribunal's final decision based on precedent and interpretation of the law.

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