2016 (3) TMI 804 - AT - Central Excise

Cenvat credit on input services used for both excisable goods as well goods chargeable to nil rate of duty - non maintenance of separate records in respect of common services used for the excisable finished goods and exempted finished goods - revenue sought to recover an amount equal to 10% of the value of the exempted goods in terms of sub rule 6 (3) (i) of Rule 6 of the Cenvat Credit Rules 2004 - Held that - Revenue is not at liberty to impose any of the options given in Rule 6 (3) of Cenvat Credit Rules on the appellant. Even if the appellants failed to exercise the option and failed to follow due procedure such failure does not take away substantial right of the appellant. In view of the above offer of the appellant to reverse proportionate ineligible credit in terms of Rule 6 (3) (ii) of the Cenvat Credit Rules has merit. It is further observed that the appellants had already reversed certain amounts but they have not paid interest as yet. The Counsel for the appellant has accepted to pay the interest applicable on ineligible credit which is required to be reversed. In view of the above it is seen that no option under Rule 6 (3) can be imposed on the appellant and the appellants offer of availing the option of proportionate credit in terms of Rule 6 (3) (ii) cannot be denied to them. However they will be liable to pay interest on the amounts which are reversed. The order-in-original is set aside and the matter is remanded to Commissioner to calculate the amount required to be reversed and the interest payable thereon.

Summary

Issues:
1. Availing Cenvat credit on input services used for both excisable goods and goods chargeable to nil rate of duty.
2. Demand raised against the appellant for not maintaining separate records for common services.
3. Imposition of penalty under Rule 15 of the Cenvat Credit Rules, 2004.

Analysis:
Issue 1:
The appellants, manufacturers of excisable goods, availed Cenvat credit amounting to Rs. 54,01,113/- from July 2008 to June 2009. The revenue demanded Rs. 2,32,23,720/- as the appellants did not maintain separate records for common services used for both excisable and exempted goods. The appellant argued that certain services were covered under Rule 6(5) of the Cenvat Credit Rules, exempting them from credit reversal even if used for exempted goods. They also maintained separate records for some input services. The Tribunal observed that the appellants opted for the option under Rule 6(3)(ii) and paid the amount as required, allowing them to reverse proportionate credit for exempted goods.

Issue 2:
The revenue contended that the appellant should have discharged interest liability if any other option under Rule 6(3) was chosen. The Tribunal held that the appellant's offer to reverse proportionate credit under Rule 6(3)(ii) cannot be denied, and interest must be paid on the reversed amounts. The order-in-original was set aside, and the matter was remanded to the Commissioner to calculate the reversal amount and interest payable.

Issue 3:
The Tribunal found that no option under Rule 6(3) could be imposed on the appellant, emphasizing that the appellant's choice of availing the option of proportionate credit under Rule 6(3)(ii) cannot be refused. The Tribunal directed the Commissioner to determine the amount to be reversed and the corresponding interest. The judgment highlights that the revenue cannot insist on a specific option under Rule 6(3) for the appellant, and the appellant's readiness to pay interest on reversed amounts is a crucial factor in the decision-making process.