2018 (5) TMI 1404 - AT - Central Excise

Tribunal overturns Commissioner's order on CENVAT credit reversal, highlights pre-notice compliance

The Tribunal allowed the appellant's appeal, setting aside the order of the Commissioner (Appeals). It was held that the appellant had effectively not ... CENVAT credit - reversal of proportionate credit of the common input services availed during the year before the issuance of the SCN - Held that: - the appellant has reversed the proportionate credit relating to common input services availed by them before the issuance of the show-cause notice on being pointed out by the audit and it amounts to as if he has not availed CENVAT Credit. Hon'ble High Court of Karnataka in the case of Himalaya Drug Co. [2011 (2) TMI 1165 - KARNATAKA HIGH COURT] held that the provisions of Rule 6(3)(i) of the CCR would not be attracted if reversal of credit is done in respect of inputs used in the manufacture of exempted final products. Appeal allowed - decided in favor of appellant. Issues:- Appeal against rejection of appellant's appeal by Commissioner (Appeals)- Availing CENVAT credit on exempted goods without payment of duty- Reversal of proportionate credit before issuance of show-cause notice- Interpretation of Rule 6(3)(i) of the CENVAT Credit Rules, 2004Analysis:1. The appeal was filed against the rejection of the appellant's appeal by the Commissioner (Appeals). The appellant was engaged in manufacturing and clearing excisable goods while availing CENVAT credit on inputs and input services. The issue arose when it was found that the appellant cleared goods without payment of duty under an exemption notification, failing to pay the required 6% of the value of exempted goods as per Rule 6(3)(i) of the CCR 2004.2. The original authority confirmed a demand, imposed interest and penalty, which was upheld by the Commissioner (Appeals). The appellant argued that they had already reversed the proportionate credit of common input services before the show-cause notice was issued. They also cited judicial precedents to support their case, emphasizing that the issue was settled by various High Court decisions.3. The Tribunal, after considering submissions and case law, found that the appellant had reversed the credit of common input services before the show-cause notice, effectively not availing CENVAT credit. Referring to the High Court decision in a similar case, it was held that Rule 6(3)(i) would not apply if credit reversal was done for inputs used in manufacturing exempted final products.4. Relying on the legal principles established in the cited cases, the Tribunal set aside the impugned order, concluding that the appellant's appeal was allowed. The judgment highlighted the importance of reversing proportionate credit before the issuance of a show-cause notice to avoid liability under Rule 6(3)(i) of the CCR 2004.