2017 (3) TMI 234 - HC - Central Excise

Reversal of CENVAT credit - assessee availed off Cenvat Credit on the inputs in the manufacture of both, dutiable as well as exempted goods - Held that - The Finance Act, 2010 makes an amendment of Rule 6 of Cenvat Credit Rules, 2002. Rule 6 was amended and is deemed to have been amended retrospectively, in the manner provided in column (3) of the Seventh Schedule, on and from and up to the corresponding date specified in column (4) of that Schedule, against the rule specified in column (2) of that Schedule - The respondent-assessee, even if it had failed to maintain a separate account in view of the retrospective amendment, it was entitled to reverse proportionate Cenvat Credit - The option of paying an amount equal to 10% sale value of exempted goods, therefore, could not have been enforced on the assessee - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 regarding the requirement of Caustic Soda Lye in the manufacture of exempted goods.
2. Whether the demand amount based on 8% of the sale price of exempted goods was unjust.
3. Application of Rule 57C or Rule 57CC in the case where input credit is not reversed at the time of clearance of exempted goods.

Analysis:

Issue 1:
The respondent-assessee, holding a Central Excise Registration, availed Cenvat Credit on inputs for manufacturing excisable goods. The Department contended that the assessee availed credit on inputs for both dutiable and exempted goods, leading to a demand for credit reversal on exempted goods. The adjustment was made as per the law, resulting in a show-cause notice and subsequent adjudication, which was challenged by the assessee. The Tribunal allowed the appeal, leading to the Revenue's present appeal.

Issue 2:
The Tribunal's decision was based on the retrospective amendment of Rule 6 of the Cenvat Credit Rules, 2002 by the Finance Act, 2010. This amendment allowed for adjustments even without maintaining a separate account, enabling the assessee to reverse proportionate Cenvat Credit. The amendment prevented enforcing the option of paying 10% of the sale value of exempted goods on the assessee. Various High Courts, including Karnataka, Madras, and Gujarat, had interpreted this provision similarly. A Division Bench decision further supported this interpretation, leading to the dismissal of the Revenue's appeal.

Issue 3:
The Tribunal's decision was in favor of the assessee based on the retrospective amendment, which allowed for adjustments without a separate account. This interpretation was consistent with previous High Court decisions and a Division Bench ruling. The Tribunal's decision was upheld, dismissing the Revenue's appeal and concluding that the substantial questions of law were to be answered against the Revenue and in favor of the assessee.