2024 (7) TMI 1072 - HC - Central Excise

Interpretation of statute - Rule 6 (3) (b) of Cenvat Credit Rules, 2004 - Demand equal to 10%, if the assessee reversed/paid proportionate Cenvat credit in respect of common input service used in the manufacture of exempted goods - whether the Tribunal properly acted as the appellate authority under Section 35C of the Central Excise Act, 1944, because the Hon'ble Tribunal does not explicitly address/verify whether the conditions stipulated under Rule 6 (3) (b) of Cenvat Credit Rules, 2004 have been complied with by the assesse - HELD THAT - In view of the findings of facts arrived at by the CESTAT, it is not in dispute that the respondent has reversed the Cenvat Credit proportionate to the credit on input service used for exempted goods along with interest. The credit though availed at the time of receipt of input service but after reversal thereof along with the interest, the respondent never availed the credit. As per option given by Rule 6 (3) of the Rules which has come into effect from 01.04.2008, the appellant could not have insisted upon the payment of 10% amount of the value of the exempted goods when the petitioner has opted for the reversal of the Cenvat Credit on the input goods and services used for the exempted goods along with the interest. Merely because the respondent has reversed such credit in the year 2010, the appellant-Revenue cannot insist upon payment of 10% amount of the value of the exempted goods coupled with the facts that the respondent has paid interest at the rate of 24% per annum on the amount of reversal of the Cenvat Credit on 01.10.2010 which is not in dispute. Thus, no question of law much less any substantial question of law arises from the impugned order of the CESTAT - appeal dismissed.

Summary

Issues:
1. Interpretation of Rule 6 (3) (b) of Cenvat Credit Rules, 2004 regarding proportionate reversal of Cenvat credit for common input service used in manufacturing exempted goods.
2. Applicability of Section 35C of the Central Excise Act, 1944 by the Tribunal and verification of compliance with Rule 6 (3) (b) of Cenvat Credit Rules, 2004.
3. Consideration of higher appellate authority judgments, evidence, and relevant conditions stipulated under rules in the findings.

Issue 1:
The case involved the interpretation of Rule 6 (3) (b) of Cenvat Credit Rules, 2004 regarding the proportionate reversal of Cenvat credit for common input service used in the manufacturing of exempted goods. The appellant argued that the demand equal to 10% would not sustain if the assessee reversed/paid proportionate Cenvat credit without adhering to the conditions stipulated under the rule. The Tribunal found that the objective of Rule 6 was to prevent availing Cenvat Credit for inputs or services used in exempted goods' manufacture. It was noted that if the assessee reversed the Cenvat credit for common input services used in exempted goods' manufacture, a demand equal to 10% would not be justified, as seen in previous judgments. The Tribunal emphasized that the amount to be recovered should not exceed the Cenvat Credit attributed to the inputs or input services used in exempted goods.

Issue 2:
The second issue revolved around the applicability of Section 35C of the Central Excise Act, 1944 by the Tribunal and the verification of compliance with Rule 6 (3) (b) of Cenvat Credit Rules, 2004. The appellant contended that the Tribunal did not explicitly address or verify compliance with the rule, which could be a substantial question of law. The Tribunal was criticized for not properly acting as an appellate authority by failing to consider the conditions stipulated in the rule. The Tribunal's failure to verify the terms and conditions under Rule 6 and act as an appellate authority raised concerns about the correctness of its approach, potentially leading to legal implications under Section 35G of the Central Excise Act, 1944.

Issue 3:
The third issue highlighted that the findings were based on no judgment of a higher appellate authority, and relevant conditions stipulated under rules were not considered. The Tribunal was criticized for not following legal principles and not taking into account the stipulated conditions while arriving at its findings. The absence of consideration for higher appellate authority judgments and evidence raised doubts about the validity of the Tribunal's conclusions. The failure to address these crucial aspects in the judgment could impact the legal standing of the decision and the adherence to established legal principles.

In conclusion, the judgment focused on the interpretation of Rule 6 (3) (b) of Cenvat Credit Rules, 2004 regarding the reversal of Cenvat credit for common input services used in manufacturing exempted goods. The Tribunal's approach, applicability of relevant legal provisions, and consideration of higher appellate authority judgments were scrutinized in the context of the issues raised. The findings emphasized the importance of adhering to the stipulated rules and legal principles while determining the liability for Cenvat credit reversal in cases involving exempted goods' manufacture.