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2020 (7) TMI 698 - AT - Central ExciseReversal of CENVAT Credit - input materials and input services are used both in or in relation to the manufacture of dutiable and exempted goods - Rule 6 of the Cenvat Credit Rules - appellant had exercised the option of availing Rule 6(3)(i) of the Cenvat Credit Rules for the year 2008-09 by making payment as per the said provision in April 2008 - bar from altering of said option - HELD THAT - This issue came up for consideration before a Co-ordinate Bench of the Tribunal in M/S. MERCEDES BENZ INDIA (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015 (8) TMI 24 - CESTAT MUMBAI . In this case the allegation was that the assessee while reversing the amount of cenvat credit and paying the interest had not followed the procedure as laid down in subrule 3A(a) and (b) of the Cenvat Credit Rules respectively, inasmuch as they had neither exercised these option by intimating the same in writing to the Superintendent of Central Excise giving required particulars nor had they determined and paid any amount provisionally for every month. Thus by not following laid down procedure as envisaged the assessee becomes liable to calculate and pay amount equivalent to 5% of the value on exempted services. There is no requirement under Rule 6(3)(i) and Rule 6(3A) of the Cenvat Credit Rules that the option had to be exercised on the first day of the financial year or the first month thereof. On the contrary, the said provisions clearly indicate that such option could be exercised at any point of time during a financial year by a manufacturer. The only restriction under Explanation-I of Rule 6(3) is that once such option is exercised, the same has to be continued with during the remaining part of the financial year. Thus, there has been due compliance by the appellant of the requirements under rule 6(3) and (3A), including the procedure laid down therein and the appellant has legally and validly availed the option in terms of Rule 6(3)(ii). The Commissioner has therefore erred in holding that the appellant had not fulfilled the conditions of procedure laid down in Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules and that the appellant was not entitled to avail option under Rule 6(3)(ii) of the Cenvat Credit Rules - Even otherwise, the demand confirmed under Rule 6(3)(i) of the Cenvat Credit Rules by the Commissioner choosing such option in the show cause notice cannot be sustained. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Compliance with Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules, 2004. 2. Validity of the appellant's exercise of the option under Rule 6(3)(ii). 3. Applicability and interpretation of Explanation-I of Rule 6(3). 4. Procedural requirements for exercising options under Rule 6(3). 5. Demand and penalties imposed under Rule 6(3)(i) and Rule 14 of the Cenvat Credit Rules. Issue-wise Detailed Analysis: 1. Compliance with Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules, 2004: The appellant contended that they complied with Rule 6(3) by making reversals of cenvat credit in terms of Rule 6(3)(ii) read with Rule 6(3A). The Tribunal found that the appellant had indeed followed the required procedure and conditions laid down in Rule 6(3A), including providing the necessary intimation to the Range Superintendent. The Tribunal referenced previous decisions (Mercedes Benz India (P) Ltd. and Aster Pvt. Ltd.) to support the view that procedural lapses in intimation do not negate the substantive compliance with Rule 6(3)(ii). 2. Validity of the appellant's exercise of the option under Rule 6(3)(ii): The appellant exercised the option under Rule 6(3)(ii) by a letter dated May 29, 2008, and made payments accordingly. The Tribunal held that the appellant's action of paying 10% for April 2008 was due to the time required to understand the new provisions and not an exercise of the option under Rule 6(3)(i). The Tribunal emphasized that exercising an option is a positive act and cannot be inferred merely from actions taken in compliance with previous rules. 3. Applicability and interpretation of Explanation-I of Rule 6(3): Explanation-I of Rule 6(3) states that once an option is exercised, it must be continued for the rest of the financial year. The Tribunal found that the appellant had not exercised the option under Rule 6(3)(i) and thus was not barred from opting for Rule 6(3)(ii). The Tribunal cited the Larger Bench decision in Ankit Packaging Ltd., which supported the view that initial payments under previous rules do not constitute an irrevocable exercise of an option. 4. Procedural requirements for exercising options under Rule 6(3): The Tribunal noted that Rule 6(3A) requires intimation to the jurisdictional Central Excise authority when exercising the option under Rule 6(3)(ii). The Tribunal found that the appellant had provided the necessary intimation and particulars, fulfilling the procedural requirements. The Tribunal referenced decisions in Mercedes Benz India (P) Ltd. and Aster Pvt. Ltd., which held that procedural lapses in intimation do not invalidate the exercise of the option under Rule 6(3)(ii). 5. Demand and penalties imposed under Rule 6(3)(i) and Rule 14 of the Cenvat Credit Rules: The Commissioner had confirmed a demand of ?4,35,71,478/- and imposed penalties, alleging that the appellant had exercised the option under Rule 6(3)(i). The Tribunal held that the demand and penalties were unsustainable as the appellant had validly exercised the option under Rule 6(3)(ii). The Tribunal referenced the Telengana High Court's decision in Tiara Advertising and the Tribunal's decision in Reliance Life Insurance Co. Ltd., which held that the Revenue cannot choose an option on behalf of the assessee. Conclusion: The Tribunal set aside the impugned order dated September 29, 2010, passed by the Commissioner, concluding that the appellant had complied with the relevant provisions and legally availed the option under Rule 6(3)(ii). The demand and penalties imposed were found to be contrary to law and were thus set aside. The appeal was allowed with consequential relief.
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