2017 (11) TMI 4 - AT - Central Excise

CENVAT credit - inputs used for manufacture of exempt as well as taxable goods - non-maintenance of separate set of books - Rule 6(3A)(b) of the Cenvat Credit Rules - whether the appellant has correctly reversed the cenvat credit attributable to the common inputs and input services consumed for exempted goods cleared, for the period 01.04.2008 to 28.02.2009 along with interest or otherwise? - Held that - It is undisputed that on being pointed out by the audit party, the error in their availment of cenvat credit, appellant reversed the proportionate cenvat credit attributable to the inputs and input services consumed in the manufacturing and clearance of the exempted final products along with interest at the rate of 13% - In the case in hand the appellant has already discharged the interest at the rate of 13% on the common inputs and input services attributable to the exempted goods. In view of this, the impugned order of the adjudicating authority seeking interest at the rate of 24% is unsustainable and liable to be set aside. Penalty - Held that - there is no reason to visit the appellant with such a penalty under Rule 15(2) of the Cenvat Credit Rules 2004 inasmuch as, it is on record that the appellant has reversed the entire amount of service tax liability with interest prior to the date on which he is supposed to do so i.e. 30th June 2009 - penalties set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Correct reversal of cenvat credit for exempted goods.
2. Applicability of interest rate on cenvat credit reversal.
3. Imposition of penalty under Rule 15(2) of Cenvat Credit Rules 2004.

Analysis:
1. The appeal challenged Order-in-Original No. 28/2010, focusing on the appellant's failure to maintain separate accounts for cenvat credit reversal for exempted goods. The Revenue alleged non-compliance with Rule 6 of Cenvat Credit Rules, 2004, leading to demands and interest charges. The appellant reversed credit with interest at 13%, but the adjudicating authority demanded 24% interest. The dispute centered on interest for the period 01.04.2008 to 28.02.2009, post-amendment of Rule 6(3). The appellant argued timely reversal and interest payment, contesting the interest rate increase. The adjudicating authority upheld the demands, prompting the appeal.

2. The key issue was whether the appellant correctly reversed cenvat credit for common inputs used in exempted goods during 01.04.2008 to 28.02.2009 with appropriate interest. The appellant reversed credit with 13% interest post-audit identification of the error. However, the adjudicating authority sought 24% interest based on Rule 6(3) clauses (h) & (i). The appellate member analyzed the relevant provisions, emphasizing the need to reverse credit before 30th June of the succeeding financial year to avoid interest. As the appellant complied by reversing credit and paying interest by the deadline, the demand for 24% interest was deemed erroneous, leading to its dismissal.

3. The penalty under Rule 15(2) of Cenvat Credit Rules 2004 was also contested. The appellate member found no basis for imposing penalties as the appellant had timely reversed the service tax liability with interest, meeting the regulatory requirements. Given the interpretational nature of the issue related to Rule 6(3), the imposition of penalties was deemed unwarranted. Consequently, the penalty imposed by the lower authorities was set aside. The impugned order was declared unsustainable, and the appeal was allowed, overturning the original decision.

In conclusion, the appellate tribunal ruled in favor of the appellant, setting aside the impugned order, and allowing the appeal based on the correct interpretation and application of the relevant provisions of the Cenvat Credit Rules, 2004.