2017 (11) TMI 338 - AT - Central Excise

CENVAT credit - input services used for both manufacturing as well as trading activities - case of appellant is that it is the option of the appellant to avail the benefit of any of the option prescribed under Rule 6(3) of the CCR - Held that - no option can be thrust upon the appellants and the appellants are free to choose any of the three options available to them. The appellants have on their own reversed a certain amount of cenvat credit which does not appear to have verified by the lower authorities. In view of the above, appeal is allowed in so far as reversal of credit in terms of 6(3)(ii) is permitted. However for verification of calculation the matter is remanded to the original adjudicating authority - appeal allowed by way of remand.

Summary

Issues:
1. Availing cenvat credit for common services used in manufacturing and trading activities.
2. Show-cause notice for availing input credit for exempted services.
3. Interpretation of Rule 6(3) of the Cenvat Credit Rules, 2004.
4. Reversal of cenvat credit under Rule 6(3)(ii) and Rule 6(3A).
5. Applicability of options prescribed under Rule 6(3) to the appellant.

Analysis:
The case involved the appellants, engaged in both manufacturing and trading activities, availing cenvat credit for common services used in both operations. The revenue, during an audit, found that the appellants were availing input credit for services used in manufacturing and trading, leading to a show-cause notice for the period 2010-2015, treating trading activity as exempted services. The demand for 2010-11 was dropped, but for 2011-15 was confirmed, prompting the appellants to reverse a portion of the credit claimed for trading activity.

The appellant argued, citing the Mercedes Benz India case, that they had the option to choose from the alternatives under Rule 6(3) of the Cenvat Credit Rules, and no option could be imposed on them. They acknowledged their lapse but contended that they rectified it by reversing the cenvat credit amount as required by Rule 6(3)(ii) and Rule 6(3A). On the other hand, the Revenue insisted that declaring the option before availing it was mandatory, relying on the impugned order.

The Tribunal, referring to the Mercedes Benz case, emphasized that the objective of Rule 6 was to prevent availing credit for exempted goods/services, not to extract excessive amounts from the assessee. It was noted that the appellant had voluntarily reversed a certain credit amount, and no option could be forced upon them. The Tribunal allowed the appeal, permitting the reversal of credit under Rule 6(3)(ii) but remanded the matter to verify the calculations by the original adjudicating authority.

In conclusion, the Tribunal held that the appellants had the freedom to choose from the options available under Rule 6(3) and that the reversal of credit under Rule 6(3)(ii) was permissible. The case was allowed for remand to verify the correctness of the credit reversal calculation by the lower authorities.