2023 (6) TMI 455 - AT - Central Excise

Reversal of CENVAT Credit - exempted products Siapton 10L - neither separate account were maintained for duty paid inputs and input services used in the manufacture of dutiable and exempted goods nor 10% amount of value of clearance of such goods was paid - Rule 6(3)(b) of Cenvat Credit Rules, 2004 - HELD THAT - In the present matter Ld. Commissioner allowed the benefit to the appellant only pertaining to the period September 2004 to March 2008 and dropped the demand as per the above retrospective inserted sub-rule (7) of Rule 6 of Cenvat Credit Rules, 2004 but confirmed the demand for the period April 2008 to June 2009 on the ground that this period is not covered under the retrospective amendment. The case of the department is that since the assessee has availed the Cenvat credit in respect of common input service used in the manufacture of dutiable and exempted goods, the appellant is required to pay 10% of the value of the goods cleared without payment of duty (exempted goods). From the facts it is undisputed that the appellant have been reversing Cenvat credit proportionate to the credit on input service used for exempted goods along with interest, therefore, first the credit though availed at the time of receipt of input service but after reversal thereof along with interest the position is as if credit was not availed. Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods - Moreover this issue has been consistently considered in various judgments wherein it was held that if the assessee reverse the Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10%/5% will not sustain. Therefore, there are no merits in the impugned order confirming demand for the period April 2008 to June 2009. In the present case since the Ld. Commissioner has demanded 10% of the value of exempted goods, he has not verified the correctness of actual Cenvat credit attributed to exempted goods as reversed by the assessee. Therefore, only for the purpose of verification of such quantification of reversal, the matter is remanded to the adjudicating authority. Appeal allowed by way of remand.

Summary

Issues involved:
The issues involved in the judgment are regarding the demand of central excise duty under Rule 6(3)(b) of Cenvat Credit Rules, 2004, the reversal of Cenvat Credit attributable to processing of a specific product, and the applicability of Rule 6 of the Cenvat Credit Rules, 2004 to the case.

Central Excise Duty Demand:
The appellant, engaged in the manufacture of excisable goods, had cleared exempted goods without payment of duty. Show cause notices were issued demanding central excise duty under Rule 6(3)(b) of Cenvat Credit Rules, 2004. The Ld. Commissioner confirmed the demand for a specific period and imposed a penalty. The appellant challenged this decision in the appeal.

Reversal of Cenvat Credit:
The appellant submitted that they had reversed Cenvat Credit attributable to the processing of a specific product, as accepted by the Commissioner. However, the demand was confirmed only for a limited period, which the appellant argued was not in line with the law. They cited legal principles and judgments to support their claim that the reversal of Cenvat Credit for exempted goods should render the demand unsustainable.

Applicability of Rule 6 of Cenvat Credit Rules:
The Ld. Commissioner confirmed the demand for a period based on the appellant's availing of service tax credit on common input services without maintaining separate records. The Commissioner held that the period was not covered under a retrospective amendment to Rule 6 of the Cenvat Credit Rules, 2004. The Tribunal noted the insertion of sub-rule (7) under Rule 6, which allowed the appellant to claim benefits with retrospective effect. The Tribunal found that the demand for a specific period was not sustainable under the amended rule.

The Tribunal observed that the purpose of Rule 6 of the Cenvat Credit Rules is to ensure that Cenvat Credit is not availed for exempted goods or services. They emphasized that the demand should not exceed the Cenvat Credit attributed to inputs used in exempted goods. Considering past judgments, the Tribunal concluded that demanding 10% of the value of exempted goods was not justified. The matter was remanded to the adjudicating authority for verification of the quantification of the reversal of Cenvat Credit attributed to exempted goods. The appeal was disposed of with a remand order for a fresh decision.