2013 (3) TMI 381 - Commissioner - Service Tax

Court reverses order, allows appeal on Cenvat credit reversal under Rule 6(3A) of CCR, 2004

IN RE : CHENNAI PETROLEUM CORPORATION LTD.

The court set aside the impugned order, allowing the appeal. It concluded that only common inputs and input services should be considered for the reversal ... Reversal of Cenvat credit - Inputs used in the manufacture of exempted goods or services - Appellant revised their computation - Omitted to exclude the clearances under Rule 6(6) - Export of electricity to Tamilnadu Electricity Board (SEZ) - Common inputs and input services used in the final product consisting of dutiable and exempted products - Proportionate credit reversal of Cenvat credit under Rule 6(3A) of CCR’ 2004 – Held that:- The instant case falls under Rule 6(3)(ii) of CCR’ 2004 [for which the procedure is prescribed in Rule 6(3A)], the value of goods removed which are specified under Rule 6(6) has to be excluded in computing the Cenvat credit attributable to exempted goods and exempted services under Rule 6(3A). - the appellant has excluded these clearances in computing the denominator [N] while determining finally under Rule 6(3A)(c) of CCR’ 2004, the amount of Cenvat credit attributable to exempted goods and exempted services. In respect of export of electricity to TNEB - Held that:- Since the appellant has already reversed the said amount and shown in their ER-1 Return no further reversal arise. - Demand set aside - decided in favor of assessee. Issues Involved:1. Proportionate reversal of Cenvat credit under Rule 6(3A) of CCR, 2004.2. Inclusion of common inputs and input services in the computation of Cenvat credit.3. Exclusion of Rule 6(6) clearances in the computation.4. Reversal of Cenvat credit for electricity wheeled out to TNEB.Issue-wise Detailed Analysis:1. Proportionate reversal of Cenvat credit under Rule 6(3A) of CCR, 2004:The central issue is whether the appellant should reverse Cenvat credit proportionately based on common inputs and input services used in both exempted and dutiable goods, or include all inputs and services, even those used exclusively in dutiable goods. The appellant argued that only common inputs and input services should be considered, while the department contended that the total Cenvat credit, including those used exclusively in dutiable goods, should be included. The judgment concluded that Rule 6(3A) applies only to common inputs and input services, not those exclusively used for dutiable goods.2. Inclusion of common inputs and input services in the computation of Cenvat credit:The appellant contended that the credit to be reversed should only include common inputs and input services used for both dutiable and exempted goods. The department's view was that the entire Cenvat credit, including those used exclusively in dutiable goods, should be considered. The judgment clarified that the provisions of Rule 6(3A) are procedural and cannot override the substantive right to avail full credit on inputs and input services used exclusively in dutiable goods. Hence, only common inputs and input services should be included in the computation.3. Exclusion of Rule 6(6) clearances in the computation:The appellant revised their computation to exclude clearances to SEZ/EOU/United Nations/Export under bond/CT-2, which fall under Rule 6(6), from the final reversal calculation. The department excluded these clearances from the denominator while computing the Cenvat credit attributable to exempted goods and services. The judgment held that the value of such clearances should be excluded from both the numerator and denominator in the formula under Rule 6(3A)(c).4. Reversal of Cenvat credit for electricity wheeled out to TNEB:The lower adjudicating authority required the appellant to reverse Cenvat credit on inputs and input services used in the manufacture of electricity wheeled out to TNEB. The appellant argued that they had already reversed the said amount and shown it in their ER-1 returns. The judgment accepted the appellant's submission that no further reversal was required since the amount had already been reversed and reflected in their returns.Conclusion:The judgment set aside the impugned order, allowing the appeal. It concluded that only common inputs and input services should be considered for the reversal of Cenvat credit under Rule 6(3A) of CCR, 2004, and clearances under Rule 6(6) should be excluded from both the numerator and denominator in the computation. Additionally, the appellant had already reversed the required amount for electricity wheeled out to TNEB, and no further reversal was necessary.