2023 (5) TMI 596 - AT - Central Excise

Proportionate reversal of credit in respect of common input service in terms of Rule 6(3A)(a) of Cenvat Credit Rules, 2004 - Trading activity - Trading had been cleared as exempted service with effect from 01.04.2011 vide Notification No.3/2011-Central Excise (N.T.) dated 01.03.2011 - HELD THAT - Admittedly the Appellant has filed the option letter belated by opting to reverse proportionate Cenvat on common inputs used. During the period under consideration, the Tribunals have been taking a liberal view that on account of the mistake of non-filing of the option letter which is only a procedural condition, the assessee should not be made to suffer by making huge payments in terms of 5%/6% of the value of the exempted services. In the case of M/S. MERCEDES BENZ INDIA (P) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015 (8) TMI 24 - CESTAT MUMBAI has held that the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand of huge amount of Rs. 24,71,93,529/- of the total value of the vehicle amounting to. Rs. 494,38,70,577/- sold in the market cannot be demanded. We are also of the view that Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. It is seen that even prior to Rule 6 (3AA) coming into effect from 01/4/2016, they have been taking the view that mere non filing of the option letter should not be used to deprive the assesssee from reversing the proportionate Cenvat Credit. The very fact that the Rule 6 (3AA) has been brought into effect from 1/04/2016 wherein the Adjudicating Authority is empowered to allow the assesse to reverse the Cenvat on proportionate basis on being pointed out, shows the legislative intent to allow the assessee to pay proportionate Cenvat Credit as the first option. The demand confirmed for Rs.2,52,853/- in terms of Rule 6(3)(i), i.e. on 5%/6% of value of exempted goods is not sustainable and the same is set aside - appellant has correctly reversed Rs.14,847/- along with interest of Rs.1796/- on proportionate reversal basis, in terms of Rule 6(3A). The interest paid by them is not disputed by the Revenue. Appeal disposed off.

Summary

Issues involved:
The issues involved in the judgment are the late submission of option for proportionate reversal of credit under Rule 6(3A) of Cenvat Credit Rules, 2004 and the demand raised by the Department for payment of 5% or 6% of the value of exempted service.

Late Submission of Option:
The Appellant, engaged in manufacturing excisable goods, undertook trading activities as well. After budgetary changes in 2011, trading was classified as 'exempted service' under Cenvat Credit rules. The Appellant exercised the option for proportionate reversal of credit from 01.04.2011 but was alleged to have submitted the option letter belatedly. The Department issued a demand for Rs.2,52,853/- for late submission, which was confirmed by the Lower Authorities.

Legal Arguments:
The Appellant contended that late filing should not hinder their choice, as they had already made a proportionate reversal and paid interest before the issuance of the show-cause notice. They cited case laws to support their position. The Learned AR supported the findings of the Lower Authorities.

Tribunal's Decision:
The Tribunal considered the Appellant's belated submission of the option letter and noted previous Tribunal decisions taking a liberal view on such procedural lapses. Referring to case laws, the Tribunal held that the demand for Rs.2,52,853/- was not sustainable under Rule 6(3)(i). The Tribunal allowed the amounts already reversed by the Appellant and set aside the balance demand, interest, and penalty.

Precedent and Legislative Intent:
The Tribunal highlighted that even before the introduction of Rule 6(3AA), Tribunals had favored allowing assesses to reverse proportionate Cenvat Credit despite late filing. The enactment of Rule 6(3AA) further supported the legislative intent to enable such reversals. Relying on precedent, the Tribunal set aside the demand and penalties, allowing the Appellant's payments made in compliance with Rule 6(3A).

Disposition of the Appeal:
The Tribunal disposed of the appeal by setting aside the demand and penalties, allowing the Appellant's reversed amounts and interest to be appropriated by the Revenue. The penalty for the promptly paid amount was also set aside.