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TMI Blog2024 (10) TMI 1463X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise vide Order-in- Original No.55/2016 and Order-in-Original No.56/2016 in respect of the demand proposed in the following Show Cause Notices:- Sl.No. Show Cause Notice No. Date Period Amount (Rs.) 1. 19/2015 01.05.2015 April 2013 to March 2014 12,07,125 2. 36/2015 19.08.2015 April 2014 to March 2015 28,15,648 Total : 40,22,773 4. At the time of admission, this Court has framed the following substantial questions of law, to be answered are as follows:- 1. Whether the 2nd respondent is correct in holding that 'total Cenvat credit taken' into consideration instead of 'common Cenvat credit taken' for the purpose of reversal of credit under Rule 6(3A) (c) (iii) of the Cenvat Credit Rules, 2004? 2. Whether the 2nd respondent is correct in holding that the term 'total Cenvat Credit taken' used in the provision of Rule 6(3A)(c)(iii) of Cenvat Credit Rules, 2004 is unambiguous? 3. Whether the 2nd respondent is correct in placing reliance on the Stay Order of the Hon'ble Tribunal in the case of Thyssenkrupp Industries to hold that only 'total Cenvat credit taken' should be considered in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods" manufactured and removed during, the financial year, and (iii) "P" denoted total CENVAT credit taken on "input services" during the financial year. 13. The case of the appellant was that the CENVAT credit taken on input service during the financial year for the purpose of "P" in the above Formula is to be confined to "common input services" availed which were both used in relation to "dutiable final products" and "exempted services" namely "trading activity" and not the total of CENVAT credit availed on "input services" as it would lead to distortion. 14. At the outset, it was submitted by the learned counsel for the appellant that the issue is no longer res integra and is covered by the following three decisions of the CESTAT, Chennai and the order of the CESTAT, New Delhi in the Appellant's own case. Sl.No. Excise Appeal No. Final Order No. Date 1. 41303/2019 40540/2020 24.02.2020 2. 41120/2016 40717/2021 11.01.2021 3. 54157/2018 51046/2021 22.02.2021 15. Apart from the above, a reference is also made to Order-in-Original No.117/AC/CGST&CE/Sankrail/2017-18 dated 08.03.2018 passed by the Assistant Commissioner of Central Tax, Sankrail CGST Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of adopting total CENVAT credit availed on "common input services" during the financial year as prescribed under the said Rule, the appellant had confined CENVAT credit taken only on "common input services" during the financial year. 22. This had resulted in short payment of amount payable under the Rule 6(3A)(c)(iii) of the CENVAT Credit Rules, 2004 and thus, the demand was confirmed vide Order-in-Original Nos.55/2016 and 56/2016, which decision was affirmed by the Appellate Commissioner vide Order-in-Appeal No.91/2017 (CXA-I) dated 28.03.2017 and by the Appellate Tribunal vide Impugned Order dated 08.11.2017. 23. We have heard the learned counsel for the appellant and the learned Senior Standing Counsel for the first respondent. 24. The dispute had arisen on account of the alleged failure of the appellant to maintain separate account as is contemplated under Rule 6(2) of the CENVAT Credit Rules, 2004 and the appellant opting to pay amount under Rule 6(3A)(c)(iii) of the CENVAT Credit Rules, 2004 as is stood during the period in dispute. 25. The scheme under the CENVAT Credit Rules, 2004 formerly CENVAT Credit Rules, 2002 and Modvat Rules under Central Excise Rules, 1944 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he place of removal; ii. in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; iii. for the provision of exempted services; and iv. for the provision of output services excluding exempted services. 30. As per Explanation 1 to the CENVAT Credit Rules, 2004, as it stood, if the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, such manufacture shall exercise such option for all exempted goods manufactured by it or, as the case may be, all exempted services provided by it, and such option shall not be withdrawn during the remaining part of the financial year. Explanation 1 to Rule 6(2) of the CENVAT Credit Rules, 2004 as it stood, reads as under:- Explanation I - If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. 31. Thus, manufacturer or service provider as the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of exempted services (provisional) = (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of output services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the months minus A; iii. the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance upto the place of removal or provision of exempted services provisional = E/F multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input service during the month. (c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) respectively, the following particulars, namely:- i. details of CENVAT credit attributable to exempted goods and exempted services, month wise, for the whole financial year, determined provisionally as per condition (b), ii. CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c), iii. amount short paid determined as per condition (d), along with the date of payment of the amount short-paid, iv. interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and v. credit taken on account of excess payment, if any, determined as per condition (f); (h) where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition (b), due to reasons that no dutiable goods were manufactured and no output service was provided in the preceding financial year, then the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to amendment to Rule 6 of the Cenvat Credit Rules, 2004 vide notification No.13/2016-CE (NT) dated 01.03.2016, the "ineligible credit" was to be determined both provisionally and finally. 36. For easy comparison and reference Rule 6 of the Cenvat Credit Rules, 2004 both before and after amendment are reproduced below:- Pre-2016 Pre-2016 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, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal of for provision of exempted services, except in the circumstances mentioned in sub-rule (2): Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. (2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified in clause (i) shall be six percent of the value exempted. Provided also that in case of transportation of goods of passengers by rail the amount required to be paid under clause (i) shall be an amount equal to 2 percent of value of the exempted services. Explanation I - If the manufacturer of goods or the provider of output service, avails any of the option under this subrule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation II - For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs used exclusively in or in relation to the manufacture of exempted goods or for provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. Explanation III - No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. (3A) For determination and payment of amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he whole financial year in the following manner, namely:- i. the amount of CENVAT credit attributable to inputs used in or relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or relation to manufacture of said exempted goods, denotes as H; ii. the amount of CENVAT credit attributable to inputs used for provision of exempted services = J/K multiplied by L, where J denotes the total value of exempted services provided during the financial year, K denotes the total value of dutiable goods manufactured and removed plus the total value of output services provided plus the total value of exempted services provided, during the financial year and L denotes the 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 and their clearance upto the place of removal or provision of exempted services = M/N multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to determine and pay such amount provisionally for each month, but shall determine the CENVAT credit attributable to exempted goods or exempted services for the whole year as prescribed in condition (c) and pay the amount so calculated on or before 30th June of the succeeding financial year. (i) where the amount determined under condition (h) is not paid within the said due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four percent per annum from the due date till the date of payment. (3B) Notwithstanding anything contained in sub-rules (1), (2) and (3), a banking company and a financial year institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans of advance shall pay for every month an amount equal to fifty percent of the CENVAT credit availed on inputs and input services in that month. (3C) .... (3D) Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth of March" occurring in sub-rules (3) and (3A) shall be read respectively as "following quarter" and "quarter ending with the month of March" 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, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services and the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service, in terms of the provisions of sub-rule (2) or sub-rule (3), as the case may be: Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able service, shall be taken then the amount specified in clause (i) shall be seven per cent. of the value so exempted : Provided also that in case of transportation of goods or passengers by rail, the amount required to be paid under clause (i) shall be an amount equal to two per cent. of value of the exempted services. Explanation 1. - If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation 2. - No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. Explanation 3. - For the purposes of this sub-rule and sub-rule (3A),- (a) -non-exempted goods removed means the final products excluding exempted goods manufactured and cleared upto the place of removal; (b) -exempted goods removed means the exempted goods manufactured and cleared upto the place of removal; (c) -non-exempted services means the output services excluding exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall be left no common credit for further attribution. iv. the amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid, D = (E/F) x C; where E is the sum total of - (a) value of exempted services provided; and (b) value of exempted goods removed, during the preceding financial year; where F is the sum total of - (a) value of non-exempted services provided, (b) value of exempted services provided, (c) value of non-exempted goods removed, and (d) value of exempted goods removed, during the preceding financial year : Provided that where no final products were manufactured or no output service was provided in the preceding financial year, the CENVAT credit attributable to ineligible common credit shall be deemed to be fifty per cent. of the common credit; (v) remainder of the common credit shall be called eligible common credit and denoted as G, where,- G = C - D; Explanation.- For the removal of doubts, it is hereby declared that out of the total credit T, which is, sum total of A, B, D, and G, the manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 from D.O.F.No.334/8/2016-TRU dated 29.02.2016 of the Central Board of Excise and Customs, New Delhi, Ministry of Finance (Department of Revenue), Government of India. Annexure -II (B) from the above said Circular reads as under:- "Important changes in Cenvat Credit Rules, 2004 effective from 1-4-2016 [Para 13 of the JS(DO) letter dated 1-3-2016] With a view to simplify and rationalize the Cenvat Credit Rules, 2004, a number of amendments are being carried out in them. Following are the important changes : (a) ..... (b) ..... (c) ..... (d) ..... (e) ..... (f) ..... (g) ..... (h) Rule 6 of Cenvat Credit Rules, which provides for reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, is being redrafted with the objective of simplifying and rationalizing the same without altering the established principles of reversal of such credit. i. sub-rule (1) of rule 6 is being amended to first state the existing principle that CENVAT credit shall not be allowed on such quantity of input and input services as is used in or in relation to manufacture of exempted goods and exempted service. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es provided to the total turnover of exempted and non-exempted goods and exempted and non-exempted services in the previous financial year; (d) Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year, as provided in the existing rule. vi. A new sub-rule (3AA) is being inserted to provide that a manufacturer or a provider of output service who has failed to follow the procedure of giving prior intimation, may be allowed by a Central Excise officer, competent to adjudicate such case, to follow the procedure and pay the amount prescribed subject to payment of interest calculated at the rate of fifteen per cent. per annum. vii. A new sub-rule (3AB) is being inserted as transitional provision to provide that the existing rule 6 of CCR would continue to be in operation upto 30-6-2016, for the units who are required to discharge the obligation in respect of financial year 2015-16. viii. Sub-rule (3B) of rule 6 is being amended so as to allow banks and other financial institutions to reverse credit in respect of exempted services on actual basis in addition to the option of 50% reversal. (i) Following are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit." 38. Thus, it is evident that it is the common input services taken during financial year and not the total CENVAT credit which has to be considered for reversal under Rule 6 (3A)(c)(ii) of the CENVAT Credit Rules, 2004. The distortion in the old Rules as it stood during the period in dispute in Rule 6 (3A)(c)(ii) of the CENVAT Credit Rules, 2004 was cured to ensure both manufacturers/service providers do not pay reverse/pay the amount under Rule 6 (3A)(c)(ii) of the CENVAT Credit Rules, 2004 in excess. 39. The definition of "exempted service" and "final products" as it stood during the period in dispute and thereafter have undergone slight variations. They are reproduced below:- Pre-2016 (Substituted with effect from 01.07.2012 by Notification No.28/2012-CE (NT) dated 20.06.2012) Post-2016 (Substituted with effect from 01.07.2012 by Notification No.28/2012-CE (NT) dated 20.06.2012) Rule 2. (e) "exempted service" means a Rule 2. (e) "exempted service" means a- Pre-2016 (Substituted with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2(h) of the CENVAT Credit Rules, 2004 included "non-excisable" goods cleared for a consideration from the factory. Explanation 1 to Rule 6(1) of the CENVAT Credit Rules, 2004 reads as under:- "Explanation 1 - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory." 44. The expression "exempted goods" as defined in Rule 2 (d) and the expression "final products" as defined in Rule 2 (h) of the CENVAT Credit Rules, 2004 reads as under:- Rule 2 (d) Rule 2 (h) "exempted goods" means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to "Nil" rate of duty and goods in respect of which the benefit of an exemption under Notification No.1/2011-CE, dated 1-3- 2011 or under entries at S.Nos.67 and 128 of Notification No.12/2012-CE, dated 17- 03-2012 is availed. "final products" means excisable goods manufactured or produced from input, or using input service; 45. Thus "traded goods" became "exempted goods" defined in Rule 2(d) of the CENVAT Credit Rules, 2004 and included "non- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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