2022 (12) TMI 1330 - AT - Central Excise

CENVAT Credit - ammonia, intermediate products - common inputs/ input services used in manufacture of exempted and dutiable goods - non-maintenance of separate records - reversal of proportionate credit under rule 6(3A) of the CENVAT Credit Rules, 2004 - HELD THAT - The issue in M/S CHAMBAL FERTILISERS AND CHEMICALS LIMITED VERSUS THE COMMISSIONER, CENTRAL EXCISE AND CENTRAL GOODS SERVICE TAX, UDAIPUR (RAJASTHAN) 2022 (11) TMI 644 - CESTAT NEW DELHI arose out of two show cause notices for issued the previous period on the same ground that the appellant had availed excess CENVAT credit by including the value of urea and single super phosphate while computing proportionate credit. It was held in the case that we find that the appellant has correctly reversed proportionate amount of Cenvat credit reckoning the value of the urea removed instead of reckoning the intermediate product ammonia which has gone into the manufacture of such urea. The appellant had correctly reversed the proportionate amount of CENVAT credit - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Computation of proportionate credit under rule 6(3A) of the CENVAT Credit Rules, 2004.

Analysis:
The appellant, engaged in manufacturing fertilizers, challenged orders confirming demand raised in show cause notices regarding the computation of proportionate credit under rule 6(3A) of the CENVAT Credit Rules, 2004. The appellant claimed proportionate credit based on the ratio of value of dutiable goods to total goods, as it did not maintain separate accounts for inputs. Two show cause notices were issued proposing to demand excess CENVAT credit for including the value of exempted goods. The Joint Commissioner confirmed the demand, which was upheld by the Commissioner (Appeals). The appellant relied on a previous decision in their favor. The Tribunal analyzed the case, emphasizing the strict construction of taxation laws and the calculation of ineligible CENVAT credit. The Tribunal found that the appellant correctly reversed the proportionate credit based on the value of exempted goods, not intermediate goods. Referring to a previous decision, the Tribunal held that the appellant's approach was correct, setting aside the orders of the Commissioner (Appeals) and allowing the appeals.

This judgment clarifies the application of rule 6(3A) of the CENVAT Credit Rules, 2004 in computing proportionate credit for dutiable goods when exempted goods are also involved in the manufacturing process. It highlights the importance of strict interpretation of taxation laws and the calculation methodology for determining ineligible CENVAT credit. The Tribunal's decision underscores the significance of considering the value of exempted goods, rather than intermediate goods, in availing proportionate credit. The case also discusses the potential for tax planning within the legal framework and compares similar scenarios in other provisions of the Credit Rules. The judgment provides a detailed analysis of the formula under rule 6(3A) and emphasizes the correct approach for reversing proportionate credit based on the value of exempted goods. The decision sets a precedent for future cases involving the computation of CENVAT credit in similar circumstances, ensuring consistency and adherence to legal principles.