2018 (10) TMI 463 - AT - Central Excise

CENVAT Credit - common Cenvatable input services used for dutiable as also exempted activities - various services stands used also for export and trading activities - Rule 6(3) of the Cenvat Credit Rules - Held that - There is no dispute about the fact that the appellant have reversed the Cenvat credit proportionate to the common input services relatable to dutiable as also exempted services. Such reversal entries do not stand disputed by the authorities below. The confirmation of demand in terms of the provisions of Rule 6(3)(i) is neither justified nor warranted inasmuch as reversal of credit amounts to a situation as if no credit was ever availed by the assessee. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Rule 6(3) of the Cenvat Credit Rules regarding the payment of duty on exempted activities.
2. Application of Cenvat credit in relation to common input services used for both dutiable and exempted activities.
3. Reversal of Cenvat credit in compliance with the provisions of Rule 6(3).
4. Justification for demanding duty on activities exclusively conducted outside India.

Analysis:
The judgment by the Appellate Tribunal CESTAT NEW DELHI, delivered by Mrs. Archana Wadhwa, Member (Judicial), revolves around the interpretation and application of Rule 6(3) of the Cenvat Credit Rules. The case involved a company engaged in manufacturing pharmaceuticals and human food stuffs in Jaipur, with an office in Bombay for export and trading activities. The Revenue alleged that the company had availed Cenvat credit for services used in both dutiable and exempted activities, leading to the demand of duty, interest, and penalty amounting to ?13,04,353. The lower authorities upheld this demand, prompting the company to appeal.

During the proceedings, the company contended that they had reversed ?16,000 for common services used in trading activities, but this fact was overlooked by the lower authorities. The company's advocate argued that although the proportionate Cenvat credit was around ?7,000, an excess amount was mistakenly reversed, with no intention to claim a refund. Additionally, the advocate highlighted that the Revenue unjustly considered the value of export trading activities from China to USA conducted by the Bombay office, which had no link to the input services availed in Jaipur.

Upon careful consideration, the tribunal found that the company had indeed reversed the Cenvat credit proportionate to the common input services used for both dutiable and exempted activities, a fact undisputed by the authorities. Consequently, the tribunal ruled that the demand under Rule 6(3)(i) was unjustified since the reversal of credit implied no actual availing of credit by the company. Therefore, the impugned order was set aside, and the appeal was allowed with consequential relief, emphasizing the importance of compliance with the rules and proper application of Cenvat credit in accordance with the law.

This judgment highlights the significance of accurate compliance with Cenvat credit rules, the necessity of proper documentation and reversal of credit for common services, and the importance of ensuring that demands for duty are justified based on the actual utilization of credit in dutiable and exempted activities.