2018 (1) TMI 254 - AT - Central Excise

CENVAT credit - manufacturing as well as trading activity - appellants availing credit on common input service which was used for manufacturing of dutiable goods as well as trading activity - Rule 6(3)(i) of CENVAT Credit Rules, 2004 - Held that - the appellant have admittedly reversed the credit attributed to the trading activity availing the option available under rule 6(3)(ii). Therefore, Department cannot insist for some other option i.e. Rule 6(3)(i). As regards the issue that the appellant was not following the condition for availing the option of Rule 6(3)(ii), it is a procedural requirement and for want of procedural requirement, substantial benefit available to the assessee cannot be denied. The option claimed by the appellant under Rule 6(3)(ii) is legally available to the appellant. However, since the learned Commissioner on merit itself denied the option of Rule 6(3)(ii) and confirmed the demand in terms of Rule 6(3)(i), he has not verified the quantum of proportionate CENVAT Credit, which was reversed by the appellant. Therefore, the matter needs to be remanded only for the purpose of re-quantification of proportionate credit as claimed and submitted by the appellant. The demand of 5% of the value of traded goods confirmed invoking Rule 6(3)(i) is not sustainable. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Availment of CENVAT Credit on common input services used for both manufacturing of dutiable goods and trading activity.
2. Applicability of Rule 6(3)(i) of CENVAT Credit Rules, 2004 for payment of 5% of the sale value of traded goods.
3. Option to pay proportionate credit under Rule 6(3)(ii) instead of 5% under Rule 6(3)(i).
4. Procedural compliance for availing the option under Rule 6(3)(ii).
5. Verification and re-quantification of proportionate CENVAT Credit reversed by the appellant.

Detailed Analysis:

1. Availment of CENVAT Credit on Common Input Services:
The appellants, engaged in manufacturing pharmaceuticals and trading bought-out products, availed credit on common input services used for both activities. The Department raised a demand for 5% of the sale value of traded goods under Rule 6(3)(i) of CENVAT Credit Rules, 2004, confirmed by the adjudicating authority, leading to recovery of interest under Section 11AB and imposition of penalty under Section 11AC.

2. Applicability of Rule 6(3)(i) of CENVAT Credit Rules, 2004:
The Department insisted on a 5% payment of the value of traded goods under Rule 6(3)(i) for the period prior to 1.4.2011, when trading activity was not defined as an exempted service. The appellant argued that post-1.4.2011, they continued the same practice and were pointed out during an audit for not paying 5% of the value of traded goods.

3. Option to Pay Proportionate Credit under Rule 6(3)(ii):
The appellant claimed the option to pay proportionate credit under Rule 6(3)(ii), which was rejected by the Commissioner. The appellant submitted a worksheet showing the reversed CENVAT amount attributed to trading turnover for 2011-12, 2012-13, and 2013-14. Reliance was placed on judgments allowing the option of proportionate credit reversal.

4. Procedural Compliance for Availing the Option under Rule 6(3)(ii):
The Department argued that the appellant did not opt for proportionate credit for each financial year and failed to file the necessary declaration. However, it was held that procedural requirements should not deny substantial benefits to the assessee. The Tribunal, referencing various judgments, emphasized that the appellant had indeed reversed the credit attributed to trading activity, thus the Department could not insist on Rule 6(3)(i).

5. Verification and Re-Quantification of Proportionate CENVAT Credit:
It was found that the appellant had complied with Rule 6(3)(ii) by reversing the actual credit attributed to the trading activity. The Tribunal noted that the adjudicating authority had not verified the quantum of proportionate CENVAT Credit reversed by the appellant. Therefore, the matter was remanded for re-quantification of the proportionate credit.

Conclusion:
The appeal was allowed by way of remand to the adjudicating authority for re-quantification of the proportionate credit. The demand of 5% of the value of traded goods under Rule 6(3)(i) was deemed unsustainable. The Tribunal emphasized that the appellant's option under Rule 6(3)(ii) was legally valid and procedural lapses should not negate substantial benefits.