TMI Blog2023 (8) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... le (3A) of Rule 6 which was introduced for determination of payment of amount payable under clause (ii) of sub-rule (3), that the manufacturer of goods or the provider of output service shall follow the procedure and conditions as set out therein. Further Rule 6 was retrospectively amended by the Finance Act, 2010 which enabled the respondent to make adjustment, namely, that even if the respondent failed to maintain a separate account, in view of the retrospective amendment, it was entitled to reverse the proportionate cenvat credit or option of paying an amount equal to 10% on exempted goods, and that could not have been enforced on the assessee. In the facts of the present case, it is clear from the record and as rightly observed by the CESTAT that under Rule 6 of the CCR, 2004, as amended from time to time, in case of common input services used for manufacture of both exempted and dutiable goods, the respondent had three options available, firstly, to maintain separate accounts in respect of the common inputs and input services used for manufacture of exempted dutiable goods and taxable and exempted service (Rule 6 (2)); or secondly, to reverse the proportionate Cenvat cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asha Desai i/b. Mr. Ram Ochani. For the Respondent : Mr. V. Sridharan with Mr. Prakash Shah, Mr.Mihir Mehta, Mr. Jas Sanghavi Mr.Yash Prakash i/b. PDS Legal. JUDGMENT (PER G. S. KULKARNI, J.) 1. This appeal under Section 35G of the Central Excise Act, 1944 (for short CE Act ) arises from an order dated 28 August 2019 passed by the Customs, Excise Service Tax Appellate Tribunal, Mumbai, Regional Bench (for short CESTAT ), whereby the respondent s appeal being Excise Appeal No. 525 of 2012 arising out of the order-in-original dated 31 January 2012 passed by the Commissioner of Central Excise, Mumbai-II, has been allowed. 2. The appellant / revenue in assailing the judgment of the CESTAT has although raised four questions of law, as fairly agreed by the parties, we confine the adjudication of the present appeal on the following substantial question of law:- A. Whether in the facts and circumstances of the case the CSTAT was right in holding that the amendment to Rule 6 of the CENVAT Credit Rules, 2004 retrospectively amended by the Finance Act, 2010, was applicable in the present case in the light of the provisions of Section 73 of the Finance Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of fertilizer; (iv) Naphtha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity; (v) [newsprint, in rolls, sheets or reels, falling within Chapter 48] of the said First Schedule; (vi) final products falling within Chapters 50 to 63 of the said First Schedule; (vii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely:- (1) No. 70/92-Central Excise, dated the 17th June, 1992, G.S.R. 595(E), dated the 17th June, 1992; (2) No. 62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254(E), dated the 16th March, 1995; (3) No. 63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255(E), dated the 16th March, 1995; (4) No. 64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256(E), dated the 16th March, 1995; [(viii) Liquefied Petroleum Gases (LPG) falling under tariff items 2711 12 00, 2711 13 00 and 2711 19 00 of the said First Schedules] (ix) Kerosene falling within heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, the amount equivalent to CENVAT credit attributable to exempted services, in the following manner, namely:- CENVAT credit attributable to exempted services (provisional) = (A/B) multiplied by C, where A denotes total value of exempted services provided during the preceding financial year, B denotes total value of taxable and exempted services provided during the preceding financial year, and C denotes total CENVAT credit of inputs and input services taken during the month; (b) pay the amount attributable to exempted services determined as above or each month, on or before 5th day of the following month; (c) determine the CENVAT credit attributable to exempted services for the whole financial year in the following manner, namely:- CENVAT credit attributable to exempted services =(X/Y) multiplied by: Z, where X denotes total value of exempted services provided during the Financial year, Y denotes total value of taxable and exempted services provided during the financial year, and Z denotes total CENVAT credit of inputs and input services taken during the financial year; (d) pay an amount equal to the difference between the amount determined: as per ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n addition to the said amount, be liable to pay interest at the rate of twenty-four per cent per annum from the due date till the date of payment] [Explanation III For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or exempted services.] (4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. (5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clauses (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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd input services used in or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A). Explanation I.- the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service. (3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :- (a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices = (J/K) multiplied by L, where J denotes the total value of exempted services provided during the financial year, K denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the financial year and L denotes total CENVAT credit taken on inputs during the financial year minus H; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods provision of exempted services = (M/N) multiplied by P, where L denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, M denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and N denotes total CENVAT credit taken on input services during the financial year; (d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the said due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four per cent per annum from the due date till the date of payment. Explanation I. Value for the purpose of sub-rules (3) and (3A) shall have the same meaning assigned to it under section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under section 4 or 4A of the Central Excise Act, 1994 read with rules made thereunder. Explanation II. The amount mentioned in sub-rules (3), (3A), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. Explanation III. If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in rule 14, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution of credit by input service distributor, 7. The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely:- (a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or (b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed. (emphasis supplied) 4. The relevant facts can be noted: The respondent is engaged interalia in the manufacture of Heat Exchangers, Pressure Vessels and Boilers, classifiable under Chapter 84 of the First Schedule to Central Excise Tariff Act, 1985. The respondent claimed benefit of exemption under items at Sr. Nos. 7, 8, 19 and 21 of the Notification No. 64/1995-CE, in respect of goods supplied to the Department of Space, Government of India and Indian Space Research Organization, and under Sr.No. 1 of Notification No. 10/1997-CE dated 9 March 1997 in respect of supplies made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(3A)(c)(iii) of the CCR, 2004 and interest of Rs. 17,49,730/- for the period from 1 April 2008 to 31 December 2010 payable thereon. 8. On the above conspectus, a show cause notice dated 3 May 2011 was issued to the respondent by the Commissioner of Central Excise as to why - (i) the amount of Rs. 32,39,35,223/-(Rupees Thirty Two Crores Thirty Nine Lakhs Thirty Five Thousand Two Hundred Twenty Three only) payable in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 prior to 1 April 2008 and Rule 6(3)(i) of the Cenvat Credit Rules, 2004 w.e.f. 1 April 2008 as mentioned above should not be demanded and recovered from them under proviso to Section 11A(1) of Central Excise Act, 1944; (ii) the amount of Rs. 1,22,98,068/(Rupees One Crore twenty two lakh ninety eight thousand sixty eight Only) paid by the assessee under Rule 6(3A)(c)(iii) of Cenvat Credit Rules, 2004 should not be appropriated against the above mentioned amount of Rs. 32,39,35,223/payable under Rule 6(3)(b) of Cenvat Credit Rules, 2004 prior to 1 April 2008 and Rule 6(3)(i) of Cenvat Credit Rules, 2004 w.e.f. 1 April 2008; (iii) appropriate interest in terms of Section 11AB of Central Excise Act, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, 2004 read with Section 11AC of the Central Excise Act, 1944. 11. Thus, the Commissioner interalia held that the respondent availed and utilized the Cenvat Credit on input services, which were used/consumed in or in relation to the dutiable as well as exempted goods, however, the respondent had not maintained separate accounts for receipt, consumption and inventory or input service meant for use in the manufacture of dutiable final products or in providing output service. It was also held that the respondent had not followed or opted for procedure set out under sub-rule 3A of Rule 6 of the CCR, 2004. There was no denial by the respondent that the respondent was required to pay the amounts in terms of Rule 6(3)(b) / Rule 6(3)(i) of the CCR, 2004. It was held that the very act of proportionate reversal of Cenvat Credit established that the respondent had not maintained separate account, and had such account been maintained, the question of availment of Cenvat Credit on such inputs / input services and their subsequent reversal would not have arisen. Further, that the reversal of the credit was only for the period from 1 April 2008 to 31 December 2010 and not for the complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untenable, as the respondent had not taken credit of service tax paid on input services, used in the manufacture of exempted goods and excluded common input service and had fully complied with Rule 6(2) of the CCR, 2004. It was contended that the respondent had maintained separate account and not taken credit of common inputs used in or in relation to the manufacture of goods cleared under exemption. The respondent also contended that there was no requirement under Rule 6(2) of the CCR 2004 to take the credit of input services used in the manufacture of dutiable goods to maintain separate account of receipt, consumption and inventory of input services. It was contended that thus the only requirement was not to use the credit in the manufacture of exempted goods. The respondent also contended that the appellant had not taken the credit of disputed common input services to the extent used in the exempted goods. It is contended that it was a settled principle of law as laid down by the Supreme Court in CCE, Mumbai vs. Bombay Dyeing and Manufacturing Company Ltd. 2007 (215) E.L.T. 3 (S.C.) that reversal of credit before utilization would amount to not taking of the credit. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 73 of the Finance Bill, 2010 were not applicable to the assessee, as there was no dispute pending on the date of the enactment of the Finance Bill,2010 and for such reason the CESTAT was also not right in holding that the amendment to Rule 6 of CCR, 2004 was applicable in the present case. It is next submitted that the CESTAT was not correct in observing that merely because the assessee has reversed the cenvat credit amounting to Rs. 1,22,98,068/- and interest of Rs. 17,49,730/- for the period 1 April 2008 to 31 December 2010 in proportion of turnover of excisable and exempted goods with respect to the service tax credit received and therefore was not required to maintain separate accounts of inputs or to follow procedure and conditions as contemplated under Rule 6 (3A) of the CCR, 2004, and that too after lapse of considerable time from the clearance of the exempted goods. It is next submitted that the CESTAT could not have come to a conclusion that an option was with the assessee under 6(3A) of the CCR, 2004 either to maintain separate accounts in respect of the common inputs and input services used for manufacture of exempted and dutiable goods and taxable and exempted serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such output service, which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for - (a) the receipt, consumption and inventory of inputs used (i) in or in relation to the manufacture of exempted goods; (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services; (iv) for the provision of output services excluding exempted services; and for (b) the receipt and use of input services (i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision for exempted services; and (iv) for the provision of output services excluding exempted services, and shall take Cenvat Credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b). Sub-rule (3) of Rule 6 provides that notwithstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services used for manufacture of exempted dutiable goods and taxable and exempted service (Rule 6 (2)); or secondly, to reverse the proportionate Cenvat credit in respect of the inputs and input services used for proving exempted goods and exempted services, by following the procedure as prescribed by Rule 6(3)(ii); or thirdly, to reverse the Cenvat credit at the rate of 5% (earlier 10%) of value of exempted goods under Rule 6 (3)(i) as amended from 1 April 2008. 25. It is clear that the respondent was not maintaining separate account in respect of input services used by it, hence, the available option for the respondent was to reverse the proportionate cenvat credit as applicable either under Rule 6(3)(i) or Rule 6(3)(ii). It is also clear that the benefit of reversing the proportionate credit was extended with retrospective effect in cases where common input and input services were used for dutiable and exempted products. This permitted the respondent to proportionately reverse the credit attributable to input / input services used for manufacture of exempted goods, in a case where common inputs or input services were used for manufacture of both dutiable and exempted goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment, in exercise of powers conferred by Section 37 of the Central Excise Act, published a Notification in the Official Gazette dated 1st March, 2002. Rule 6 was amended and is deemed to have been amended retrospectively, in the manner provided in column (3) of the Seventh Schedule, on and from and up to the corresponding date specified in column (4) of that Schedule, against the rule specified in column (2) of that Schedule. The amendment, therefore, enables the dealer to make these adjustments. The respondent-assessee, even if it had failed to maintain a separate account in view of the retrospective amendment, it was entitled to reverse proportionate Cenvat Credit. The option of paying an amount equal to 10% sale value of exempted goods, therefore, could not have been enforced on the assessee. That is how consistently even the Tribunals and the High Courts namely, the High Court of Karnataka at Bangalore, the High Court of Judicature at Madras and the High Court of Gujarat at Ahmedabad, have all understood and interpreted this provision. In such circumstances and even while these matters were brought to our notice, a Division Bench in the case of Central Excise Appeal No. 138 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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