2018 (7) TMI 670 - AT - Central Excise

CENVAT Credit - input services - manufacture of both dutiable and exempted products - appellants failed to maintain separate accounts for the input services used in manufacture of dutiable and exempted products - Held that - On being pointed out, the appellants have reversed the entire input service tax credit availed during the disputed period which comes to ₹ 46,17,410/- - having reversed the credit that has been irregularly availed by them, the department cannot force upon the appellant to pay 10% of the value of clearances. The said issue has been settled in the case of SPM Industries 2014 (3) TMI 1054 - ANDHRA PRADESH HIGH COURT , where it was held that Where the credit taken has been reversed on inputs utilised in manufacturing of the final exempted product stand deleted in the account of the assessee, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final product, which is exempted. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availment of CENVAT credit on input services used for both dutiable and exempted products without maintaining separate accounts
- Demand of 10% of the value of exempted products due to failure to maintain separate accounts
- Re-credit taken by the appellant for certain services falling under Rule 6(5)
- Imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004
- Appeal against the demand and penalty

Analysis:
1. The appellants availed CENVAT credit on input services used for both dutiable and exempted products without maintaining separate accounts. A show cause notice was issued proposing a demand of 10% of the value of exempted products cleared for a specific period. The appellants had reversed the credit availed on all input services used commonly for both types of products. The original authority confirmed the demand and imposed a penalty under Rule 15 of CENVAT Credit Rules, 2004. The Commissioner (Appeals) upheld the decision, leading the appellants to appeal before the Tribunal.

2. The appellant's counsel argued that the issue of whether the appellants are liable to pay 10% of the value of exempted goods after reversing the credit has been settled by various legal precedents. The counsel pointed out that the show cause notice alleged the liability based on the failure to maintain separate accounts for specific services. The appellants had taken re-credit for services falling under Rule 6(5) without any irregularity mentioned in the notice. The counsel contended that since the appellants had reversed the credit not eligible for them, the demand for payment of 10% of the value of goods is unjust. The counsel cited a relevant legal case to support this argument.

3. The Additional Commissioner reiterated the findings in the impugned order during the hearing. After hearing both sides and examining the records, the Tribunal found that the appellants had indeed availed input service tax credit on common input services used for both types of products. Upon realizing their eligibility for credit on certain services, the appellants took re-credit for those services. The Tribunal referenced legal precedents to support the decision that the demand for 10% of the value of clearances should be set aside since the appellants had rectified the irregular credit availed. The Tribunal concluded that the demand could not be sustained, set aside the impugned order, and allowed the appeal with any consequential relief as per law.