2019 (3) TMI 32 - AT - Central Excise

CENVAT Credit - electricity generated in the Cogen is primarily used in the factory for manufacture of dutiable final products such as sugar and surplus electricity is sold to other parties - common input services also availed - non-maintenance of separate records - Rule 6 of CENVAT Credit Rules, 2004 - Held that - The appellant has already reversed the proportionate CENVAT credit amounting to ₹ 2,39,329/- for the period April 2015 to March 2016 as per the formula which is prescribed under Rule 6(3A) of CCR - further, the Department is wrongly demanding the amount of ₹ 10,97,718/- by wrongly following the formula as prescribed under Rule 6(3A) of CCR. The reversal of proportionate CENVAT credit amounting to ₹ 2,39,329/- is perfectly valid and incompliance with the CENVAT credit Rule 6(3A) - demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Demand of CENVAT credit under Rule 6 of CENVAT Credit Rules, 2004
- Applicability of Rule 6(3A) of CCR
- Proper quantification of CENVAT credit
- Interpretation of relevant circulars and notifications
- Liability for interest and penalty

Analysis:

Demand of CENVAT credit under Rule 6 of CENVAT Credit Rules, 2004:
The appeal challenged an order confirming a demand of ?10,97,718 for non-payment under Rule 6 of CENVAT Credit Rules, 2004. The appellant, engaged in manufacturing sugar and alcohol, utilized bagasse waste for generating electricity. The appellant availed CENVAT credit on inputs exclusively for dutiable products but not for electricity generation. Following an investigation and reversal of credit, a show-cause notice demanded recovery of credit for electricity sold, leading to the Commissioner confirming a reduced demand of ?10,97,718.

Applicability of Rule 6(3A) of CCR:
The appellant argued that the demand was wrongly calculated, citing Rule 6(3A) of CCR and non-adherence to a relevant circular. Referring to precedents like the IBM India Pvt. Ltd. case, the appellant contended that exclusive use of inputs for dutiable services does not require credit reversal. Additionally, reliance was placed on the Dell International Services Pvt. Ltd. case where demand proceedings were dropped, emphasizing the retrospective nature of Rule 6 clarified by Notification No.13/2016.

Proper quantification of CENVAT credit:
The appellant maintained that the correct proportionate amount to reverse was ?2,39,329 as per Rule 6(3A). The Tribunal found the Department's demand of ?10,97,718 to be erroneous, as the appellant had already complied with Rule 6(3A) by reversing ?2,39,329. Relying on established decisions, the Tribunal deemed the demand unsustainable in law and set it aside, aligning with the principles elucidated in the IBM India Pvt. Ltd. and Dell International Pvt. Ltd. cases.

Interpretation of relevant circulars and notifications:
The appellant highlighted Circular No.868/6/2008-CX and Notification No.13/2016 to support their arguments. By emphasizing the clarificatory and retrospective nature of Rule 6, the appellant aimed to invalidate the demand and avoid liability for interest and penalty.

Liability for interest and penalty:
The appellant contended that no interest or penalty should be levied since they were not liable to pay the duty. The Tribunal's decision to set aside the demand of ?10,97,718 inherently relieved the appellant from the associated interest and penalty, aligning with the legal interpretation and precedents cited during the proceedings.