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TMI Blog2024 (1) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... ctricity and in terms of Rule 6(3)(ii) of the CCR, 2004 opted to follow the procedure of proportional credit reversal under Rule 6(3A) of the CCR 2004. They had informed the department about exercise of the option to reverse proportional credit and accordingly, reversed the credit on proportionate basis provisionally each month. At the end of the financial year, final reversals were done and intimated to the department. However, the department issued a show-cause notice stating that the reversals done by the appellant was not in accordance with law and the amount reversed was much less than what had to be reversed as per Rule 6(3A) of CCR, 2004. On adjudication, an amount of Rs.24,68,32,910/- was confirmed along with interest and penalty. 2. The learned counsel on behalf of the appellant submitted that Rule 6(3A) of the CCR, 2004 is applicable only to the inputs and input services used in the manufacture of dutiable goods and exempted goods; but the department has taken the entire input service credit which has been availed by the appellant. It is submitted that the Rules envisage reversal of the credit that is only utilised for the manufacture of exempted goods. It is further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015-2016. The relevant provisions of law are reproduced below: RULE 6. Obligation of a manufacturer or producer of final products and a provider of output service. - (1) The CENVAT credit shall not be allowed on such quantity of input used in or in relation to the manufacture of exempted goods or for provision of exempted services, on input service used in or in relation to the manufacture of exempted goods and their clearance up to the place of removal or for provision of exempted services, except in the circumstances mentioned in sub-rule (2) ------------ (3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely:- (a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely:- (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) descriptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total value of exempted services provided, during the financial year and L denotes total CENVAT credit taken on inputs during the financial year minus H; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services = (M/N) multiplied by P, where P denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, M denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and N denotes total CENVAT credit taken on input services during the financial year; ( emphasis supplied ) (d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid; (e) the manufacturer of goods or the provider of output service, shall, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment. Explanation I.- "Value" for the purpose of sub-rules (3) and (3A) shall have the same meaning assigned to it under section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under section 4 or 4A of the Central Excise Act, 1944 read with rules made thereunder. Explanation II.-The amount mentioned in sub-rules (3) and (3A), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. Explanation III.- If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.' As seen from Rule 6(1), its clear that cenvat credit cannot be allowed on inputs and input services that are exclusively used for exempted goods or services. Therefore, Rule (3A) needs to be enforced in order to determine t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in exempted services, is being redrafted with the objective to simplify and rationalize the same without altering the established principles of reversal of such credit. It has been further clarified at paragraph (iv) of the Circular that the purpose of the rule is to deny credit of such part of the total credit taken, as is attributable to the exempted services and under no circumstances this part can be greater than the whole credit." 6. The Tribunal in the case of Commissioner of C. Ex. & S.T., Rajkot vs. Reliance Industries Ltd. (supra) observed that: "From the reading of Rule 6(1), it is clear that only in respect of input or input service used in exempted goods are not allowed. That means input or input service used in taxable service/dutiable goods, Cenvat credit is allowed. Sub-rule (2) of Rule 6 is only as an option that if any input or input services used in exempted goods, credit should not be allowed and only with this intention some mechanisms for expunging Cenvat credit attributed only to the exempted goods are provided. As per clause (b)(ii) & (iv), it is clearly provided that entire credit in respect of receipt and use of inputs/input service is allowed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the Hon'ble Supreme Court, the sub-rule (3A) being substitution shall have a retrospective effect and will be applicable for all time since when the Rule was enacted. Therefore, for this reason also, for the purpose of calculation of Cenvat credit reversal, in the formula, total Cenvat credit shall mean credit of only common input service and not of input service exclusively used for the manufacture of dutiable product on which the Cenvat credit is eligible to the respondent in its entirety. Rule 6(1) of the Rules curtails the service provider from availing Cenvat credit on input services used for exempted services. This clearly means that credit is allowed to be taken only on input services pertaining to taxable services. In other words, wherever exempted services are rendered, the credit pertaining to such exempted service is not admissible and is required to be reversed. Rule 6(2) provides that wherever exempted service is rendered, then such service provider has to maintain separate accounts for receipt, consumption and inventory of various input services used for rendering such service and that Cenvat credit should be availed only in respect of input services used in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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