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2020 (12) TMI 1124 - AT - Central ExciseCENVAT Credit - common input services for taxable as well as exempt goods - maintaining separate accountal of input and input services used in or in relation to manufacture of exempted and dutiable final products - alteration of option exercised under Rule 6(3) of the Cenvat Credit Rules in mid 2012-13 - time limitation - equivalent penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Act. Whether for the purposes of Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules it was obligatory on the part of the appellant to maintain separate accountal of input and input services used in or in relation to manufacture of exempted and dutiable final products prior to manufacture of the final products or reversal of the cenvat credit of the duty and tax involved in respect of exempted inputs and input services on proportionate basis after manufacture of the final products also satisfies the requirement of Rule 6(2) of the Cenvat Credit Rules? - Whether, in the facts and circumstances of the instant case, the appellant is required to make payment of an amount equal to 6% of the value of the exempted goods and 7% of the value of the exempted services in terms of Rule 6(3)(i) of the Cenvat Credit Rules? - HELD THAT - It is acknowledged both in the impugned order and the show cause notice that the appellant had reversed on proportionate basis the duty/tax paid on inputs and input services which were used, to the extent they related to exempted final products. There is no denial of this fact although issues have been raised regarding alleged discrepancies in the quantum of the reversals made, which we find had been duly attended to by the appellant by way of reversal with interest. It is also acknowledged in the impugned order that in all such cases of reversal, wherever required, the same has been effected along with payment of interest - It is now a settled proposition that reversal of cenvat credit even after manufacture of the goods and/or clearance thereof amounts to not taking of the credit on the exempted goods and that in case of common inputs and input services used in or in relation to the manufacture of dutiable and exempted final products, credit proportionate to use of inputs and input services in exempted products, if reversed, the assessee is not required to make payment of an amount in terms of Rule 6(3)(i) of the Cenvat Credit Rules - The demand of ₹ 58,96,13,230/- confirmed by the impugned order is unsustainable since the appellant has reversed the cenvat credit on input and input services attributable to the exempted product, including in some cases with interest if applicable - Reliance can be placed in the case of M/S GAYA MARKETING VERSUS THE STATE OF BIHAR THROUGH THE PRINCIPAL SECRETARY CUM COMMISSIONER, THE JOINT COMMISSIONER OF STATE TAXES, THE ASSISTANT COMMISSIONER OF STATE TAXES, GAYA. 2020 (1) TMI 1355 - PATNA HIGH COURT . Whether the appellant had altered the option exercised under Rule 6(3) of the Cenvat Credit Rules in mid 2012-13 and whether the same was not permissible as per Explanation I of Rule 6(3)? - HELD THAT - The materials on record clearly establishes that in this case the appellant had not exercised at any point of time during the period 2012-13 the option in terms of Rule 6(3)(i) of the Cenvat Credit Rules prior to July, 2020. No document to the contrary has been disclosed either in the show cause notice SCN or in the impugned order. In the impugned order it has been acknowledged by the Commissioner also that Explanation I to Rule 6(3) of the Cenvat Credit Rules does not bar exercising option in the middle of a financial year. However, according to him such option has to be exercised by physically writing to the Range Officer with assessee particulars and Cenvat Account Balance, which has not been done in the instant case - there has been no violation of the provisions of Explanation I to Rule 6(3) of the Cenvat Credit Rules. Whether the demand confirmed is barred by limitation? - penalty - HELD THAT - At all material point of time the Department was fully aware of and/or was made aware of by the appellant of all relevant facts, including the manner of compliance by the appellant with the requirements in terms of Rule 6(2) of the Cenvat Credit Rules. In these circumstances, as per principles laid down by the Apex Court consistently, there can be no case of suppression of any material fact or wilful misstatement or contravention by an assessee of any provision of the Act or the rules made thereunder with intent to evade duty/tax and hence there can be no invocation of the extended period of limitation in terms of the Proviso to Section 11A(1) or Section 11A(4) of the Act. The demand in such cases can only be for the normal period under Section 11A(1) of the Act - For the same reasons no penalty can be imposed upon an assessee in such cases in terms of Rule 15(2) of the Cenvat Credit Rules or Section 11AC of the Act. Whether in the facts and circumstances of the case penalty equivalent is imposable upon the appellant under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Act? - HELD THAT - The demand of interest in terms of Section 11AA of the Act and penalty imposed under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Act are also unsustainable. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Obligation to maintain separate accounts of inputs and input services under Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules. 2. Requirement to pay an amount equal to 6% of the value of exempted goods under Rule 6(3)(i). 3. Alteration of option under Rule 6(3) in mid-financial year 2012-13. 4. Bar of limitation on the confirmed demand. 5. Imposition of penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Act. Detailed Analysis: Issue No. (i) & (ii): Obligation to Maintain Separate Accounts and Payment of 6% on Exempted Goods: - Rule 6(2) post-01.03.2011 mandates maintaining separate accounts of "inputs used" and "use" of input services. The appellant adopted a back calculation method for compliance, which was undisputedly accepted. - Both the show cause notice and the impugned order acknowledged the impracticality of maintaining separate accounts for inputs used in exempted DI Pipes due to the exemption determination at the time of clearance. - The appellant reversed the duty/tax paid on inputs and input services proportionately, which was acknowledged in the impugned order. - Established case law supports that proportionate reversal of credit satisfies Rule 6(2) requirements, negating the need for payment under Rule 6(3)(i). Issue No. (iii): Alteration of Option in Mid-2012-13: - The appellant started reversing cenvat credit from July 2012 after being pointed out by the jurisdictional Range Superintendent, which continued in subsequent years. - The Tribunal's decision in Tata Steel Ltd. Vs. CCEx. & ST, Jamshedpur, supported that exercising the option mid-year does not violate Rule 6(3) provisions, as long as it is continued for the remaining financial year. - The impugned order's contention that the option must be exercised by writing to the Range Officer was rejected by precedents, affirming that procedural lapses do not negate substantive compliance. Issue No. (iv): Bar of Limitation: - The appellant's compliance with Rule 6(2) was known to the Department through ER-1 returns and audits from 2012-13 to 2014-15. - The show cause notice issued on August 2, 2017, was beyond the normal 2-year period, making the demand barred by limitation. - The Supreme Court's consistent principle that no suppression or intent to evade duty was present, thus extended period invocation was unjustified. Issue No. (v): Imposition of Penalty: - Given that the demand itself is unsustainable and barred by limitation, the imposition of interest under Section 11AA and penalty under Rule 15(2) read with Section 11AC is also unsustainable. Conclusion: The impugned order dated 19.06.2018 was set aside, and the appeal was allowed with consequential relief, as the appellant's actions complied with the Cenvat Credit Rules, and the demand was barred by limitation.
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