2017 (9) TMI 1244 - AT - Central Excise

Tribunal overturns demand on CENVAT credit for exempted goods, citing failure to inform authorities.

Micheli Bearings (India) Pvt Ltd Versus Commissioner of Central Excise, Customs and Service Tax

The Tribunal set aside the order confirming the demand equivalent to 10% of the value of exempted goods cleared by the appellant. It ruled that the ... CENVAT credit - non-maintenance of separate records - Rule 6(3A) of the CENVAT Credit Rules - Held that: - there is no dispute as to the fact that the appellant had reversed the proportionate CENVAT credit attributable to inputs and input services utilized for manufacturing and clearing of exempted goods; that they have not informed the Revenue authorities at the beginning of the year i.e., 2008-09 as to the intention to reverse the proportionate CENVAT credit as per Rule 6(3A) of the CENVAT Credit Rules, 2004. Since there is no denial that the appellant had reversed the proportionate CENVAT credit in time as provider, the ratio of the Division Bench of the Tribunal in the case of Cranes and Structural [2016 (8) TMI 387 - CESTAT BANGALORE], will squarely apply to the case in hand, wherein it has been held that provisions of Rule 6(3A) are procedural in nature and if they are compiled subsequently within the time, should be held as compliance of the provisions of CENVAT Credit Rules. Appeal allowed - decided in favor of appellant. Issues: Confirmation of demand of amount equivalent to 10% of value of exempted goods cleared after availing CENVAT credit on common inputs and input services. Interpretation of Rule 6(3A) of CENVAT Credit Rules regarding reversal of proportionate credit for manufacturing exempted goods without informing Revenue authorities at the beginning of the year.Analysis:The appeal challenged the confirmation of demand equivalent to 10% of the value of exempted goods cleared by the appellant after utilizing CENVAT credit on common inputs and input services. The Revenue contended that the appellant failed to maintain separate records and thus had to reverse 10% of the value of exempted goods cleared. However, the appellant argued that they had exercised the option for reversal of proportionate CENVAT credit as per Rule 6(3A) before the stipulated period of 30.6.2009. The Division Bench's decision in a similar case was cited, emphasizing that non-exercise of the option at the beginning of the year is a procedural issue, and subsequent reversal of proportionate credit should be considered compliant with the law.The Revenue argued that the appellant did not inform the Revenue authorities at the beginning of the year 2008-09 about the intention to reverse the proportionate CENVAT credit, as required by Rule 6(3A). Despite the appellant's claim of maintaining separate accounts, the failure to inform the Revenue authorities was highlighted as a non-compliance with the procedural requirements. The appellant's timely reversal of the proportionate CENVAT credit was acknowledged, but the lack of initial intimation was deemed a violation of the Rule.The Tribunal analyzed Rule 6(3A) and concluded that the procedural requirement of intimating the Department about the option exercised is not a condition for losing the right to avail the second option of reversing the credit. The Tribunal emphasized that the failure to intimate does not restrict the appellant to follow the first option under Rule 6(3)(i). Additionally, the Tribunal noted that the demand raised by the Revenue was beyond the limitation period, as the appellant had reversed the credit with interest before the issuance of the show cause notice. The Tribunal deemed the demand unsustainable both on merit and limitation grounds, ultimately setting aside the impugned order and allowing the appeal.In light of the Division Bench's decision and the procedural interpretation of Rule 6(3A), the Tribunal held that the impugned order was unsustainable and set it aside, thereby allowing the appeal against the confirmation of the demand related to the exempted goods cleared after availing CENVAT credit.