TMI Blog2021 (11) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 15 provides for imposition of penalty if CENVAT credit has been wrongly availed which allegation must be made in the show cause notice with a proposal to recover such wrongly availed CENVAT credit under Rule 14 but such a demand has not been made. Instead, a demand of an amount equal to 8%/ 10% of the exempted goods under Rule 6(3) has been made in the show cause notice, which is only an option to the assessee and cannot be demanded under Rule 14. Since the show cause notice itself has been issued without authority of law, any penalty imposed in the impugned order in pursuance of it needs to be set aside too. Appeal allowed - decided in favor of appellant. - EX/26491 & 26681 of 2013 - FINAL ORDER No. 30341-30342/2021 - Dated:- 10-11-2021 - MR. DILIP GUPTA, PRESIDENT AND MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Shri PRV Ramanan, Special Counsel for the Department. Shri Raghavan Ramabhadran, Advocate for the assessee. ORDER These two appeals have been filed by the assessee and the Department assailing the same order-in-original dated 31.01.2013 [the impugned order] passed by the Commissioner of Customs and Central Excise, Hyderabad III deciding four sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority also imposed a penalty on the appellant. Assessee is aggrieved both by the calculation in the impugned order without excluding the credit of input services under Rule 6(5) and also by the imposition of penalty. Revenue is aggrieved by the fact that the adjudicating authority allowed proportionate reversal which is permissible subject to some conditions which, according to the Revenue, have not been fulfilled by the assessee and hence the Commissioner should have confirmed the entire amount of demand as per the show cause notice. 4. The issues which fall for consideration, therefore, are: a) Is the assessee entitled to reverse proportionate amount of CENVAT credit as asserted by the assessee and disputed by the Revenue? b) If the assessee can reverse the credit proportionately, can the assessee exclude the credit taken on services under Rule 6(5) as done by the assessee, but disputed by the Revenue and disallowed in the impugned order? c) Can a show cause notice be issued demanding an amount under Rule 6(3A) of the CCR? d) Is the penalty imposed upon the appellant sustainable? 5. We proceed to consider the arguments of both sides with respect to each of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s good as not taking credit at all. This meets the requirement under Rule 6(1). Reliance is placed on the judgment of the Supreme Court in Chandrapur Magnet Wires (P) Ltd. versus Collector of Central Excise, Nagpur [1996 (81) E.L.T. 3 (S.C.)]. ii. Proportionate reversal also meets the requirement of maintenance of separate accounts as envisaged under Rule 6(2). iii. From 1.4.2008, Rule 6(3A) was introduced and it specifically provided for proportionate reversal and also gave a formula for reversal. The assessee has reversed the credit accordingly. iv. For period prior to 1.4.2008, since there was confusion, a retrospective amendment has been made by Finance Act, 2010 providing for proportionate reversal which requires, inter alia, a declaration to be made to the Commissioner and the amounts to be reversed along with interest. The assessee appellant has also fulfilled these requirements. 8. On behalf of the Revenue, it has been submitted that the assessee is not entitled to make proportionate reversal. Proportionate reversal was provided for specifically under Rule 6(3A) with effect from 1.4.2008 and for the past period by Finance Act, 2010. Both these provisions had som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the same input or input service procured by the assessee is to take credit and debit entries. Either the assessee can take credit of only that proportion of the inputs/input services which has gone into the manufacture of dutiable goods or it can take the entire credit and reverse that portion of the inputs/input services which have gone into producing exempted products. Such an accounting practice becomes all the more necessary in cases such as this when the output good viz., electricity itself is common and becomes either exempted (if wheeled out) or not (if it is used captively for manufacture of dutiable goods). Even in the normal accounting practices, debit notes and credit notes are issued to make adjustments towards excess payments or short payments. In our view, reversal of proportionate amount of CENVAT credit is a sufficient requirement under Rule 6(2). Supreme Court in Chandrapur Magnets also held so and the decision applies to this case. 11. After 1.4.2008, Rule 6(3A) specifically provides for proportionate reversal and provides a formula for the purpose and the assessee has followed it. Revenue s objection to accepting such reversal is on the ground that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p) (q), (r) (v) (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of Section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services . 15. The services in question which were used according to the appellant in their power plant and Ferro Alloy plant are as follows :- 6 (5) services used only in power plant Service Reference in Finance Act Amount in Rs. Maintenance Repair service 65 (105) (zzg) 1,43,00,339/- Consultancy 65 (105) (r) 92,942/- Inspection 65 (105) (zzi) 8,314/- Technical service 65 (105) (zzh) 5,865/- Testing gas analysis 65 (105) (zzh) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther been submitted that as per the definition under CCR, input means, inter-alia, all goods used for generation of electricity or steam for captive use [Rule 2 (k) (iii)]. Similarly final products as per Rule 2 (h) means excisable goods manufactured from input or using input services . Anything not used in manufacture of final products does not qualify as input and the final product has to be one which is an excisable good. Excisable good is not defined in the CCR but is defined in the Act to mean goods specified in Schedule to the Central Excise Tariff Act as being subject to a duty of excise and includes salt. While Electrical energy is mentioned in the Schedule to the Tariff, no duty is mentioned against it; instead, somewhat unusually, # is mentioned against this entry. Since no amount or number including zero is indicated against electrical energy, it does not qualify as excisable good at all. Since it is not excisable good, it does not qualify as final product under CCR. If it is not a final product (whether exempted or otherwise), the benefit of Rule 6(5) is not available to the assessee at all. Thus the inputs attributable to electricity sold but not captively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay an amount under Rule 6(3). The obligations under Rule 6 are in the form of various alternatives and the assessee is free to choose any option. There is no mechanism either in the CCR or in the Act to enforce any of the options or one of the options on the assessee. If the assessee does not choose any of the options and still avails CENVAT credit, such irregularly availed CENVAT credit can, of course, be recovered under Rule 14 of the CCR. The High Court of Telangana and Andhra Pradesh has, in the case of Tiara Advertising, held as follows: 13. Having considered the issue of maintainability of this writ petition, we are of the opinion that the petitioner cannot be non-suited on the ground of availability of an alternative remedy. The alternative remedy principle is not a straitjacket formula but a rule of convenience which has been evolved by Courts so as to ensure equitable distribution of work. It is therefore within the discretion of this Court to refuse to adopt the said rule in a deserving case. Presently, we find that the second respondent has brazenly exercised power under a provision which was not even available to him, as it was an enabling provision put in place for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order, which the assessee controverts and the Revenue supports. This Rule reads as follows: 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 in term of clause (a) or clause (b) of sub-section (1) of section 11AC of the Excise Act or sub-section (1) of section 76 of the Finance Act (32 of 1994), as the case may be. (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 clause (c), clause (d) or clause (e) of sub-section (1) of section 11AC of the Excise Act. (3) In a case, where the CENVAT credit in respect of input or capital goods or input ..... X X X X Extracts X X X X X X X X Extracts X X X X
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