2014 (6) TMI 57 - AT - Central Excise

Tribunal rules for appellant on CENVAT Credit compliance, nullifying demand & penalties

The Tribunal ruled in favor of the appellant, emphasizing compliance with Rule 6 of the CENVAT Credit Rules, 2004. The appellant's reversal of a ... Reversal of CENVAT Credit - Interest - Penalty - Whether the reversal of entire amount of CENVAT Credit availed on the common input services is enough compliance of the provisions of Rule 6; when an assessee manufactures and clears dutiable as well as exempted product - Held that:- though the appellant has produced some kind of evidence before us which would indicate that the appellant had started manufacturing the exempted cotton yarn from 18.01.2007, we find that the issue is unverifiable and the adjudicating authority has recorded that the appellant did not produce any evidence before him. Keeping in mind the elapsed time, we are of the view that if the appellant is directed to reverse this amount of Rs.1,22,606/-, it would meet the ends of justice and also the compliance of the law under Rule 6 of CENVAT Credit Rules, 2004. We direct the appellant to reverse an amount of Rs.1,22,606 within 30 days from the date of receipt - appellant also needs to be directed to pay interest on both the amounts i.e. Rs.3,26,554/- and Rs.1,22,606/-. Lower authorities will calculate the interest in accordance with the provisions of law and inform the appellant accordingly, and the appellant within 10 days of such amount being intimated, will pay the same into the Government treasury - However, penalty is set aside - Decided partly in favour of assessee. Issues:1. Availment of Service Tax credit on common inputs used in manufacturing activity.2. Manufacturing dutiable product and exempted cotton yarn without separate accounts.3. Dispute regarding reversal of CENVAT Credit availed on common input services.4. Compliance with Rule 6 of CENVAT Credit Rules, 2004.5. Demand of interest on reversed CENVAT Credit amounts.6. Interpretation of penalty imposition in the case.Analysis:1. The appellant was charged with availing Service Tax credit on common inputs used in manufacturing, including dutiable product and exempted cotton yarn without separate accounts. The lower authorities demanded an amount equivalent to 8% or 10% of the value of exempted goods cleared due to lack of separate accounts. The appellant contested, claiming to have reversed the CENVAT Credit on common inputs, thus challenging the demand.2. The main issue considered was whether the reversal of the entire CENVAT Credit on common input services was sufficient compliance with Rule 6 when manufacturing both dutiable and exempted products. The appellant argued they had reversed a substantial amount, citing relevant case laws supporting their compliance with the law.3. The Tribunal acknowledged the appellant's reversal of a significant portion of CENVAT Credit but noted an outstanding amount not reversed for a specific period. Despite some evidence presented by the appellant regarding the start of manufacturing exempted cotton yarn, the issue remained unverifiable. The Tribunal directed the appellant to reverse the outstanding amount within a specified timeframe for compliance with Rule 6.4. Regarding the demand for interest on the reversed CENVAT Credit amounts, the Tribunal held that the appellant should pay interest on both the reversed amounts. The lower authorities were tasked with calculating the interest as per the law, and the appellant was instructed to pay the determined interest promptly.5. Given the case's interpretational nature, the Tribunal set aside the penalty imposed on the appellant. The Tribunal concluded that the reversal of CENVAT Credit fulfilled the requirements of Rule 6, thereby nullifying the demand for 8% or 10% of the value of exempted goods, along with associated interest and penalties.6. Ultimately, the Tribunal disposed of the appeal, setting aside the impugned order confirming the demand and penalties. The decision emphasized the importance of compliance with Rule 6 of the CENVAT Credit Rules, 2004, and highlighted the significance of reversing CENVAT Credit in such scenarios to meet legal obligations.This detailed analysis of the judgment from the Appellate Tribunal CESTAT AHMEDABAD covers the key issues, arguments presented, legal interpretations, and the final decision rendered in the case.