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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 ..... 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 - the trading activities carried out by the appellant were exempted service within the meaning of the provisions of the CENVAT Credit Rules, 2004. The trading activities carried out by the appellant were exempted service both before and after amendment to the Rules. As far as the present dispute is concerned, Rule 2(e) of the CENVAT Credit Rules, 2004 is relevant as it stood prior to 2016. It has not undergone any change for the purpose of this inquiry. Similarly, Rule 6 of the CENVAT Credit Rules, 2004 also underwent few changes - During the period in dispute between April 2013 to March 2015, the Rule 6 of the CENVAT Credit Rules, 2004 read slightly different from how it read after the amendment vide Notification No.13/2016-CE (NT) dated 01.03.2016. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 formula under Rule 6(3A)(c)(iii) of Cenvat Credit Rules, 2004? 5. In this appeal, the appellant has questioned the correctness of the impugned Final Order dated 08.11.2017 passed by the second respondent in Final Order No.42827/2017 in Appeal No.E/41533/2017-SM. 6. The appellant was engaged in manufacture of dutiable goods and components. Apart from the manufacture of dutiable goods , the appellant was also engaged in trading of goods namely generated parts which involved mere packing of bought out parts. 7. The appellant had availed CENVAT credit on common input services, which were both used for manufacture of dutiable goods namely automobile parts and for trading of goods namely generated parts . 8. Since trading of generated pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant'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 Division, Howrah Commissionerate, dealing with an identical issue wherein the demand proposed was dropped. 16. Arguing further, the learned counsel for the appellant would submit that the formula under Rule 6(3A) of the CENVAT Credit Rules, 2004 has to be construed by confining the denomination P to the total common input services and not the total credit availed by an assessee. 17. That apart, the learned counsel for the appellant submitted that the entire scheme under Rule 6(3A) of the CENVAT Credit Rules, 2004 underwent to change vide Notification No.13/2016-CE (NT) dated 01.03.2016. Therefore, it is submitted that, it has to be read as clarificatory nature and therefore retrospective. 18. It is further submitted that the Rule was substituted by virtue of the aforesaid notification. The learned counsel for the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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 to allow the manufacturers as also the service providers to avail input tax credit i.e., CENVAT Credit on duty/tax paid on input , input services and capital goods to the extent they were to be used in or in relation for manufacture of dutiable goods and/or taxable services or both. 26. There was prohibition to the effect that no credit shall 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 up to the place of removal or for provision of exempted services. 27. This is clear from Explanation II to Rule 6(2) of the CENVAT Credit Rules, 2004. Explanation II to Rule 6(2) of the CENVAT Credit Rules, 2004 reads as under:- Explanation 2 For removal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 case may be opting not to maintain separate account as was contemplated in Rule 6(2)(a) and (b) of the CENVAT Credit Rules, 2004, had three options, namely:- Option-1 Option-2 Option-3 (i) pay an amount equal to six percent of value of the exempted goods and exempted services (ii) pay an amount as determined under sub-rule (3A) (iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 attributable to exempted goods and exempted services for the 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempted 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 manufacturer of goods or the provider of output service is not required 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. 33. The dispute has arisen only on account of interpretation of the formula in Rule 6(3A)(c)(ii) of the CENVAT Credit Rules, 2004 as it stood during the period in dispute. The dispute is whether alphabet P in the formula in Rule 6 (3A)(c)(ii) of the CENVAT Credit Rules, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 any inputs or input services and manufacturers such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for- (a) the receipt, consumption an inventory of inputs used- i. in or in relation to the manufacture of exempted goods; ii. in or in relation to the manufacture of dutiable final products excluding exempted goods; iii. for the provision of exempted services; iv. for the provision of output services excluding exempted services; and (b) the receipt and use of input services- i. in or in relation to the manufacture of exempted goods and their clearance upto the 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, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 number of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to the exercised; (iii) description of dutiable goods or output services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition. (b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month- i. the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year; (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, in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four percent, per annum from the due date i.e., 30th Jun till the date of payment, where the amount short-paid is not paid within the said due date; (f) where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken. Explanation I - Value for the purpose of sub-rules (3) and (3A), - (a) shall have the same meaning as assigned to it under Section 67 of the Finance Act, read with rules made thereunder or, as the case may be, the value determined under Section 3, 4 or 4A of the Excise Act, read with rules made thereunder; (b) in the case of a taxable service, when the option available under sub-rules (7), (7A), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under Section 66B of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; (c) in case of trading, shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten percent of the cost of goods sold, whichever is more; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. Explanation 2. - Value of non- excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder. Explanation 3. - For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a service as defined in section 65B(44) of the Finance Act, 1994 [provided that such activity has used inputs or input services]. Explanation 4. - Value of such an activity as specified above in Explanation 3, shall be the invoice/agreement/contract value and where such value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Finance Act, 1994 and the rules made thereunder.] [(2) A manufacturer who exclusively manufactures exempted goods for their clearance upto the place of removal or a service provider who exclusively provides exempte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the output services excluding exempted services.] (3A) For determination of amount required to be paid 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) 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 number 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. description of inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services and description of such exempted goods removed and such exempted services provided; iv. description of inputs and input services used exclusively in or in relation to the manufacture of non-exempted goods removed and such exempted services provided; v. CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition. Notification No.13/2016-CE (NT) date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the output service shall be able to attribute provisionally and retain credit of B and G, namely, eligible credit and eligible common credit and shall provisionally pay the amount of credit of A and D, namely, ineligible credit and ineligible common credit. (vi) where manufacturer or the provider of the output service fails to pay the amount determined under sub-clause (i) or sub-clause (iv), he shall be liable to pay the interest from the due date of payment till the date of payment of such amount, at the rate of fifteen per cent. per annum; (c) the manufacturer or the provider of output service shall determine the amount of CENVAT credit attributable to exempted goods removed and provision of exempted services for the whole of financial year, out of the total credit denoted as T (Annual) taken during the whole of financial year in the following manner, namely :- (i) the CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services on the basis of inputs and input services actually so used during the financial year, shall be called Annual ineligible credit and denoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided in sub rules (2) and (3), for two different situations. ii. sub-rule (2) of rule 6 is being amended to provide that a manufacturer who exclusively manufactures exempted goods for their clearance up to the place of removal or a service provider who exclusively provides exempted services shall pay (i.e., Reverse) the entire credit and effectively not be eligible for credit of any inputs and input services used. iii. sub-rule (3) of rule 6 is being amended to provide that when a manufacturer manufactures two classes of goods for clearance upto the place of removal, namely, exempted goods and final products excluding exempted goods or when a provider of output services provides two classes of services, namely exempted services and output services excluding exempted services, then the manufacturer or the provider of the output service shall exercise one of the two options, namely, (a) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services, subject to a maximum of the total credit taken or (b) pay an amount as determined under sub-rule (3A) . iv. The maximum limit prescribed in the first option would ensure that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inserted in rule 6, subrule (1) so as provide for reversal of CENVAT Credit on inputs/input services which have been commonly used in providing taxable output service and an activity which is not a service under the Finance Act, 1994. ii. Sub-rule (4) is being amended to provide that where the capital goods are used for the manufacture of exempted goods or provision of exempted service for two years from the date of commencement of commercial production or provision of service, no CENVAT credit shall be allowed on such capital goods. Similar provision is being made for capital goods installed after the date of commencement of commercial production or provision of service. iii. Sub-rule (7) is being amended so as to provide that credit taken on inputs and input services used in providing a service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India shall not be required to be reversed by the shipping lines. It may be mentioned here that this service presently qualifies as an exempted service on account of Rule 10 of Place of Provision of Supply Rules. Service by way of transportation of goods by a vessel from customs stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 012-CE (NT) dated 20.06.2012) (1) taxable service which is exempt from the whole of the service tax leviable thereon; or (2) service, on which no service tax is leviable under Section 66B of the Finance Act; or (3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken; but shall not include a service which is exported in terms of Rule 6A of the Services-Tax Rules, 1994 . (1) taxable service which is exempt from the whole of the service tax leviable thereon; or (2) service, on which no service tax is leviable under Section 66B of the Finance Act; or (3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken; but shall not include a service- (a) which is exported in terms of Rule 6A of the Service Tax Rules, 1994; or (b) by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India. 4 (h) final products means excisable goods manufactured or produced from input, or using input service; 4 (h) final products means ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (e) of rule 2 shall include an activity, which is not a service as defined in Section 65B(44) of the Finance Act, 1994 (provided that such activity has used inputs or input services). Explanation 3 to Rule 6(1) of the CENVAT Credit Rules, 2004 reads as under:- Explanation 3. - For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a service as defined in section 65B(44) of the Finance Act, 1994 [provided that such activity has used inputs or input services]. 47 . All through the period right from inception till 2016, the provisions read identically. For the Assessment Years 2011-2012, 2012-2013 and 2015- 2016, the appellant's appeal was also allowed by the Tribunal. The dispute in these two cases pertain to the Assessment Years 2013-2014 and 2014-2015 which prior to 2016. Since, the provisions have been amended to remove distortion arising out of strict application of the old format, we see no reasons to take a different stand in this appeal. 48. In view of the above, the appellant shall be entitled for consequential relief if any. We are therefore of the view that the Impugned Order deserves to be set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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