2022 (11) TMI 861 - AT - Service Tax

Reversal of proportionate CENVAT Credit - common input services have been used in the manufacture of excisable goods as well as in the trading activity - failure to maintain separate accounts to utilize the CENVAT credit - Recovery of 5%/ 6%/ 7% of the value of exempted service in accordance with Rule 6(3)(i) of the Cenvat Credit Rules, 2004 as amended - HELD THAT - In the present matter appellant admittedly reversed the proportionate Cenvat Credit attributable to the trading activity/ exempted service, this is not under dispute. Therefore the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, 2004 therefore demand of huge amount on the total value of the trading activity @ 5% / 6%/ 7% cannot be demanded. Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services - when the appellant have categorically agree for the reversal of Cenvat credit by way of opting for option provided under sub-rule (3)(ii), how Revenue can insist that option (3)(i) under Rule 6 should only be followed by the assessee. The demand confirmed by the adjudicating authority has no legs and therefore the same cannot be sustained. The impugned orders demanding amount equal to 5%/ 6%/ 7% are set aside and the matters are remanded to the adjudicating authority to verify and pass a fresh order regarding the correctness of proportionate credit to be reversed in this matter after giving a reasonable opportunity of hearing to the appellants - appeal allowed by way of remand.

Summary

Issues:
Appeal against Orders-in-Original for recovery of Cenvat Credit on common input services used in manufacturing and trading activities.

Analysis:
1. Facts of the Case and Allegations:
- The appellants engaged in manufacturing and trading activities availed Cenvat Credit on input and input services.
- Show-cause notices issued for recovery of Cenvat Credit on exempted services due to common input services used in manufacturing and trading.
- Allegation of failure to maintain separate accounts for Cenvat Credit utilization.

2. Appellant's Arguments:
- Appellants reversed proportionate Cenvat Credit and argued for belated reversal as per Rule 6(3)(iii).
- Cited various judgments supporting the reversal of credit even at the Tribunal stage.
- Contended that the adjudicating authority wrongly denied the exercise of the reversal option.

3. Contentions on Reversal of Cenvat Credit:
- Appellant argued for the right to choose the beneficial option for credit reversal under Rule 6 of Cenvat Credit Rules 2004.
- Emphasized that the law does not compel the appellant to select a specific reversal option.

4. Exemption from Reversal:
- Appellant argued against reversal of Cenvat credit for common input services related to exported goods and goods sold to mega power projects.
- Supported arguments with relevant judgments favoring exemption from credit reversal.

5. Revenue's Position:
- Assistant Commissioner (AR) reiterated findings in the impugned orders without providing new arguments.

6. Tribunal's Decision:
- Tribunal noted that the appellants had already reversed the proportionate Cenvat Credit related to trading activities/exempted services.
- Held that the demand for a significant amount on the total value of trading activity was unjustified.
- Interpreted Rule 6 of Cenvat Credit Rules as not intended to extract illegal amounts from the assessee.
- Ruled that the demand confirmed by the adjudicating authority was unsustainable and remanded the matter for a fresh order on the correct proportionate credit reversal.

7. Conclusion:
- The Tribunal set aside the impugned orders demanding 5%/6%/7% amounts, emphasizing compliance with Rule 6 provisions.
- Directed the adjudicating authority to reevaluate and issue a fresh order after providing a reasonable opportunity for hearing to the appellants.
- Appeals allowed by way of remand to the adjudicating authority.

This detailed analysis of the legal judgment highlights the issues, arguments, and the Tribunal's decision, providing a comprehensive overview of the case.