2022 (3) TMI 590 - AT - Central Excise

CENVAT Credit - common inputs used for manufacture of dutiable and exempted goods - non-maintenance of separate records - Rule 6(3) (i) of CCR - if some credit has been taken and thereafter reversed, with respect to part of the credit, does it amount to not taking a credit at all or is the Appellant still liable for wrong availment of credit? - HELD THAT - Hon ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. versus Collector of Central Excise, Nagpur 1995 (12) TMI 72 - SUPREME COURT held that once credit is debited, it is as good as not taking credit at all. The findings of learned Commissioner cannot be agreed upon that even if bulk of the disputed CENVAT credit is allowable as per Rule 6(5) and even though the remaining CENVAT credit amounting to ₹ 42,760/- has already been reversed by the appellant along with interest, it cannot be considered as not taking ineligible CENVAT credit. The learned Commissioner felt that such an interpretation would render Rule 6 redundant and therefore, demanded 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 CENVAT credit on common inputs or input services. Whether Rule 6(2) requires separate procurement of common inputs or input services as those to be used for manufacture of dutiable goods and those to be used for manufacture of exempted goods? - HELD THAT - The rule only requires the Appellant to maintain separate accounts for receipt, consumption and inventory of inputs and input services used in manufacture of dutiable final products and manufacture of exempted goods. Accounts can be maintained in many ways. One may procure goods separately for dutiable and exempted goods. One may procure some goods commonly and apportion them and take credit to the extent they are to be used for manufacture of dutiable goods. One may take the entire credit on the inputs and reverse the input credit if and to the extent they get used in the manufacture of exempted goods. All these amount to maintaining separate accounts - 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. Whether Rules 6(1), 6(2) and 6(3) apply to all input services? - HELD THAT - 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 the services covered by Rule 6(5) are concerned, credit will be available regardless of whether dutiable or exempted products are manufactured. Whether the department can demand and recover under Rule 14 an amount under Rule 6(3) (i) equal to 10% of the value of the exempted products? - HELD THAT - Any wrongly availed CENVAT credit can be recovered under Rule 14. Also various alternatives are given under Rule 6 are options available to the assessee who wishes to avail Cenvat credit on inputs which are used in manufacture of dutiable and exempted products. The rule nowhere empowers the Departmental officers to choose one of the options for the assessee and enforce it. If the assessee does not fulfill its obligations under any of the options under Rule 6 and still avails the cenvat credit on common inputs/input services it would be taking credit in violation of Cenvat Credit Rules, 2004 and such wrongly availed Cenvat credit can be recovered under Rule 14. But under no circumstances 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.

Summary

Issues Involved:
1. Whether the appellant is liable to pay an amount under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.
2. Whether the appellant can maintain separate records for dutiable and exempted goods and still avail CENVAT credit on common input services.
3. Whether the reversal of CENVAT credit by the appellant amounts to not taking credit at all.
4. Whether the Revenue can enforce an option under Rule 6(3) on the appellant.
5. Whether a penalty equal to an amount calculated under Rule 6(3)(i) can be imposed under Rule 15.

Detailed Analysis:

1. Liability under Rule 6(3)(i):
The Revenue argued that the appellant must pay an amount equal to 10% of the value of the exempted goods under Rule 6(3)(i) since the appellant availed CENVAT credit on common input services. The appellant contended that they reversed the credit of ?42,460/- along with interest, thus complying with the requirements under Rule 6(1). The tribunal held that as per the Supreme Court's decision in Chandrapur Magnet Wires (P) Ltd. versus Collector of Central Excise, once the credit is reversed, it is as good as not taking the credit at all. Therefore, the appellant is not liable under Rule 6(3)(i).

2. Maintenance of Separate Records and Availment of Credit:
The appellant maintained separate records for inputs used in the manufacture of dutiable and exempted goods and argued that they could still avail proportionate CENVAT credit on common input services. The tribunal found that nothing in Rule 6 prevents an assessee from maintaining separate accounts under Rule 6(2) and still availing proportionate CENVAT credit on common inputs or input services. The tribunal stated that the Commissioner erred in holding that maintaining separate accounts under Rule 6(2) disallows credit on common input services.

3. Reversal of CENVAT Credit:
The appellant reversed the credit of ?42,460/- along with interest, and the tribunal held that this reversal is as good as not taking the credit at all, following the Supreme Court's decision in Chandrapur Magnet Wires. Therefore, the appellant complied with Rule 6(1), and there was no need to invoke Rules 6(2) and 6(3).

4. Enforcement of Options under Rule 6(3):
The tribunal held that Rule 6(3) provides options to the assessee, and the Revenue cannot enforce any particular option on the assessee. The tribunal cited the Andhra Pradesh and Telangana High Court's decision in M/s Tiara Advertising versus Union of India, which held that the statutory scheme does not vest the authorities with the power to make a choice on behalf of the assessee.

5. Imposition of Penalty under Rule 15:
The tribunal found that Rule 15 provides for a penalty equal to the wrongly availed CENVAT credit but not a penalty equal to an amount calculated as per Rule 6(3)(i). Since Rule 6(3)(i) is only one of the options for fulfilling obligations to be entitled to CENVAT credit, the imposition of an equivalent amount of penalty under Rule 15 is without authority of law.

Conclusion:
The tribunal allowed the appeal and set aside the impugned order with consequential relief to the appellant, concluding that:
- The Revenue cannot choose and enforce an option under Rule 6(3) on the appellant.
- An amount under Rule 6(3) cannot be demanded or recovered under Rule 14.
- No penalty equal to an amount under Rule 6(3) can be imposed under Rule 15.
- The entire demand in the SCN and confirmed in the impugned order is without any authority of law.
- Once the credit taken except the credit on services covered by Rule 6(5) and the credit on services received when the appellant was exclusively manufacturing dutiable goods has been reversed, the Revenue has no cause of action.