Rule 6 CENVAT credit treatment for manufacturers-cum-service providers turned on separate accounts and utilisation limits.

Rule 6(3) of the CENVAT Credit Rules, 2004 was examined in the context of a manufacturer who was also a registered service provider. The appellant maintained separate accounts for inputs used in dutiable and exempted goods, but not for input services. The dispute turned on whether 10% of the value of exempted goods was payable under Rule 6(3)(b), or whether Rule 6(3)(c) applied because the appellant also provided output services and had complied with the 20% utilisation restriction in the ST-3 return. The demand under Rule 6(3)(b) was found unsustainable, and Rule 6(3)(c) was treated as the applicable provision.

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Issues: Whether, on the facts of the case, the appellant was liable to pay 10% of the value of exempted goods under Rule 6(3)(b) of the CENVAT Credit Rules, 2004, or whether Rule 6(3)(c) applied in view of its status as a manufacturer and registered service provider maintaining separate accounts for inputs.

Analysis: The appellant had maintained separate accounts for inputs used in dutiable and exempted goods, but had not maintained separate accounts for input services. The dispute therefore turned on the correct application of Rule 6(3). The rule as applicable during the relevant period required payment of 10% of the value of exempted goods under clause (b) only where the manufacturer opted not to maintain separate accounts, whereas clause (c) governed the credit-utilisation restriction applicable to a provider of output service. The record showed that the appellant was also a registered service provider and had complied with the 20% utilisation restriction reflected in the ST-3 return. The authorities had not explained why clause (b) would apply despite these facts and why clause (c) would not.

Conclusion: Rule 6(3)(c) was applicable and the demand of 10% of the value of the exempted goods under Rule 6(3)(b) was not sustainable. The impugned order was set aside and the appeal was allowed.

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