TMI Blog2022 (3) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... manded an amount of ₹ 11,95,39,489/- - the Appellant has completely complied with the requirement under Rule 6(1). Thus, there is no need to go into Rules 6(2) and 6(3). However, since these Rules have been discussed in the impugned order, we examine their scope in this case. Learned Commissioner has also held that the Appellant can choose Rule 6(2) or 6(3) and he cannot choose both and since the Appellant has chosen Rule 6(2), the Appellant cannot take any credit on common input services. With respect, we cannot agree with the Commissioner. Nothing in Rule 6 prevents an assessee from choosing to maintain separate accounts under Rule 6(2) and still avail proportionate amount of CENVAT credit on common inputs or input services. The Commissioner has erred gravely in holding that any assessee who maintains separate accounts under Rule 6(2) is not entitled to any credit on common inputs or input services as there is no legal provision to back this assumption of the Commissioner. Such an interpretation will lead to absurd and impractical conclusions. Thus, it is wrong to say that an assessee opting to maintain separate accounts under Rule 6(2) cannot avail the benefit of CEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s can the Department force a particular choice upon the appellant and demand an amount calculated as per Rule 6 (3) under Rule 14 as has been done in this show cause notice - Similarly, Rule 15 provides for imposition of a penalty equal to the wrongly availed cenvat credit but not a penalty equal to an amount calculated as per Rule 6(3) (i) because Rule 6(3)(i) is only one of the options through which the assessee can fulfill its obligations to be entitled to CENVAT credit. Therefore, both the demand of an amount calculated as per Rule 6(3) under Rule 14 and imposition of an equivalent amount of penalty under Rule 15 are without the authority of law and need to be set aside. Thus, Revenue cannot choose and force an option under Rule 6(3) upon the appellant - An amount under Rule 6(3) cannot be demanded or recovered under Rule 14. Appeal allowed - decided in favor of appellant. - Excise Appeal No. 2215 of 2012 - A/30040/2022 - Dated:- 11-3-2022 - MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) AND MR. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL) Shri G. Natarajan, Advocate for the Appellant. Shri Mir Anwar Mohiuddin, Authorized Representative for the Respondent ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,489/- (Eleven Crores Ninety five lakhs thirty nine thousand four hundred and eighty nine only) on the assesses under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Sec.11AC of the Central Excise Act, 1944. The assessee have the option of paying the reduced penalty of 25% of the penalty imposed at Sl.No.(v) above in terms of Section 11AC of the Central Excise Act, 1944 subject to following the procedure prescribed therein. 3. The following submissions have been made on behalf of the Appellant. (i) The appellant had maintained separate records of the inputs used in manufacture of dutiable and exempted products. (ii) As far as the credit of ₹ 11,95,077/- taken by the Appellant is concerned, it was taken on the basis of the ISD invoices issued by its headquarters which is permissible. Such services, having been used in the headquarters of the Appellant, cannot be attributed to only dutiable or to only exempted products. (iii) The obligations on the manufacturer under Rule 6(1) which requires the manufacturer to not take credit on input services used in manufacture of exempted goods, Rule 6(2) which requires the manufacturer to maintain separate record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides for determination of the value for the purpose of calculation of duty. Central Excise Duty is a value added tax, i.e., it is designed so as to collect tax only on the value added during the process of manufacture. This is given effect to by charging duty on the transaction value (sale price) of the final products but allowing the manufacturer to take credit of the duty paid on the inputs or service tax paid on input services and use it to pay the duty on the final products. Thus, effectively, the manufacturer ends up paying duty in cash only to the extent of value added by it. Rules have been framed from time to time to give the credit of duty or service tax paid on inputs and input services. Initially, there were rules allowing MODVAT credit under Central Excise Rules, 1944 which were superseded by CENVAT Credit Rules, 2001 and further by CENVAT Credit Rules, 2002 and further by CENVAT Credit Rules, 2004. 6. The Cenvat Credit Rules 2004 were framed by the Central Government under Section 37 of the Central Excise Act and Section 94 superseding the earlier Cenvat Credit Rules, 2002 (which dealt with Cenvat credit only for manufacture) and Service Tax Credit Rules, 2002 (w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in dispute is (b) which reads as follows :- (b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to ten per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory; 9. This Rule 6 (3) was amended w.e.f. 01.03.2008 and a new Rule 6 (3A) was also introduced and these amended provisions are relevant for this case. After amendment, Rule 6 (3) Rule 6 (3A) reads as follows :- (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely :- (i) the manufacturer of goods shall pay an amount equal to ten per cent of value of the exempted goods and the provider of output service shall pay an amount equal to eight per cent of value of the exempted services ; or (ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes total CENVAT credit taken on inputs during the month minus A; (iii) The amount attributable to input services used in or in relation to manufacture of exempted goods 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 taxable 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 services 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 in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods, denoted as H; (ii) The amount of CENVAT credit attributable to inputs used for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er condition (b) ; (2) CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c), (3) Amount short paid determined as per condition (d), along with the date of payment of the amount short-paid, (4) Interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and (5) 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 taxable 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries. Rule 15. Confiscation and penalty.- (1) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of any of the provisions of these rules, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty or service tax on such goods or services, as the case may be, or two thousand rupees, whichever is greater . (2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilised wrongly by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Excise Act, or of the rules made thereunder with intent to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act. (3) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilised wrongly by reason of fraud, collusion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 11,95,39,489/-. Applying the ratio of Chanderpur Magnets, it must be held that it is as good as the appellant not taking any CENVAT credit at all as soon as it has reversed the credit of ₹ 42,760/-. Thus, the Appellant has completely complied with the requirement under Rule 6(1). Thus, there is no need to go into Rules 6(2) and 6(3). However, since these Rules have been discussed in the impugned order, we examine their scope in this case. 14. Learned Commissioner has also held that the Appellant can choose Rule 6(2) or 6(3) and he cannot choose both and since the Appellant has chosen Rule 6(2), the Appellant cannot take any credit on common input services. With respect, we cannot agree with the Commissioner. Nothing in Rule 6 prevents an assessee from choosing to maintain separate accounts under Rule 6(2) and still avail proportionate amount of CENVAT credit on common inputs or input services. The Commissioner has erred gravely in holding that any assessee who maintains separate accounts under Rule 6(2) is not entitled to any credit on common inputs or input services as there is no legal provision to back this assumption of the Commissioner. Such an interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empted goods. All these amount to maintaining separate accounts. Just as any bank, while maintaining separate accounts for each account holder, does not stock the money deposited by them separately, an assessee can stock the inputs together and take credit to the extent of their use in dutiable goods. Alternatively, the assessee can take the entire CENVAT credit and debit credit to the extent of the inputs used in manufacture of exempted goods, which as per the ratio of Chanderpur Magnets, is as good as not taking credit to that extent. If the assessee receives common input services and reverses the credit in proportion to the value of the exempted products, it is sufficient compliance of Rule 6(2). In this case, the Appellant reversed not just credit proportionate to the value of the exempted goods cleared, but has reversed the entire credit on common input services used during the period when it was manufacturing both dutiable and exempted goods. 16. The next question is whether Rules 6(1), 6(2) and 6(3) apply to all input services. A plain reading of Rule 6(5) shows that it s non- obstante clause overrides the provisions of Rules 6(1), 6(2) and 6(3). Therefore, insofar as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who does not maintain separate accounts in relation to receipt, consumption and inventory of inputs/input services used for provision of output services which are chargeable to duty/tax as well as exempted services. If such options are not exercised by the service provider, the provision does not contemplate that the Service Tax authorities can choose one of the options on behalf of the service provider. As rightly pointed out by Sri S.Ravi, learned senior counsel, if the petitioner did not abide by the provisions of Rule 6(3) of the CENVAT Credit Rules, 2004, it was open to the authorities to reject its claim as regards the disputed CENVAT Credit of ₹ 17,15,489/-. 15. We may also note that in the event the petitioner was found to have availed CENVAT Credit wrongly, Rule 14 of the CENVAT Credit Rules, 2004 empowered the authorities to recover such credit which had been taken or utilised wrongly along with interest. However, the second respondent did not choose to exercise power under this Rule but relied upon Rule 6(3)(i) and made the choice of the option thereunder for the petitioner, viz., to pay 5%/6% of the value of the exempted services. The statutory scheme did not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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