Appellate Tribunal rules demand for payment of exempted goods time-barred under Cenvat Credit Rules

The Appellate Tribunal ruled in favor of the appellant, holding that the demand for payment of 8% of the value of exempted goods under Rule 6 of Cenvat Credit Rules, 2002 was time-barred. The appellant's disclosure of credit reversal on a pro-rata basis during clearances, made known to the department through CT-2 certificates, prevented further demand under Rule 6. The Tribunal emphasized procedural compliance in availing exemptions and timely disclosure to tax authorities to avoid demands being barred by limitation.

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Issues:
1. Demand for payment of 8% of the value of exempted goods under Rule 6 of Cenvat Credit Rules, 2002.
2. Time bar for the demand due to clearance under exemption with CT-2 certificate.
3. Consideration of reversal of credit on pro-rata basis during clearances.

Analysis:

Issue 1:
The appellant cleared consignments under exemption Notification No. 6/2002-CE by reversing Cenvat credit for input used in manufacturing exempted goods. The department demanded payment of 8% of the value of exempted goods under Rule 6 of Cenvat Credit Rules, 2002. The demand was confirmed by the adjudicating authority and upheld by the Ld. Commissioner(Appeals).

Issue 2:
The appellant argued that the demand was time-barred as clearances under exemption were made with CT-2 certificates, and credit reversal was disclosed on invoices. The appellant contended that since the department was aware of the clearances and the quantum of reversal, there was no suppression of facts. The appellant had been reversing credit at the time of clearances on a pro-rata basis, making the 8% reversal under Rule 6 unnecessary. The Appellate Tribunal agreed that the demand was barred by limitation as the show cause notice was issued after one year, and the appellant's disclosure of credit reversal prevented any further demand under Rule 6.

Issue 3:
The Tribunal noted that clearances under exemption were made with CT-2 certificates as per the prescribed procedure. The appellant had disclosed the reversal of credit on a pro-rata basis, which was known to the department. The Tribunal cited the Supreme Court's decision in the case of Commissioner of C. Ex. Mumbai-I Bombay Dying and Manufacturing Co. Ltd, stating that even if credit reversal was done after clearance but before utilization, it was sufficient compliance. Therefore, the Tribunal set aside the impugned order, allowing the appeal on both merit and limitation grounds.

This judgment highlights the importance of procedural compliance in availing exemptions and the significance of timely disclosure of relevant information to tax authorities to prevent demands being barred by limitation.

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