Tribunal rules demand for payment unjustified under CENVAT Credit Rules

The Tribunal found the demand for payment of 10% / 5% of the value of exempted products under Rule 6(3) of CENVAT Credit Rules, 2004, to be unjustified. The appellants' compliance by reversing the credit was deemed sufficient notification of their choice, as per precedent. The Tribunal emphasized that the requirement to file a declaration was procedural and held that the demand for additional payment could not be sustained when the proportionate credit had been reversed. Consequently, the Tribunal set aside the demand, allowing the appeal with any consequential relief.

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Issues:
- Availment of CENVAT credit on inputs and capital goods for manufacturing exempted products.
- Alleged failure to file a declaration under Rule 6(3) of CENVAT Credit Rules, 2004.
- Demand for payment of 10% / 5% of the value of exempted products under Rule 6(3) of CENVAT Credit Rules, 2004.
- Applicability of retrospective amendment introduced by the Finance Act, 2010.
- Interpretation of procedural requirement to file a declaration under Rule 6(3) of CENVAT Credit Rules, 2004.

Analysis:
The appellants were involved in the manufacture of gear box assembly and gear motor assembly, including for Wind Operated Electricity Generators, and availed CENVAT credit on inputs and capital goods. They also availed common input credit for exempted products and reversed the proportionate credit attributed to such products. However, the department demanded payment equal to 10% / 5% of the value of exempted products under Rule 6(3) of CENVAT Credit Rules, 2004. The adjudicating authority confirmed the demand, interest, and penalties, leading to an appeal by the appellants before the Tribunal.

The appellant argued that they had complied by reversing the credit, which should have been sufficient notification of their choice, as per the decision in Commissioner of Central Excise, Chennai Vs. ICMC Corporation Ltd. The appellant's counsel contended that the demand was unjustified solely based on the failure to file a declaration under Rule 6(3) of CENVAT Credit Rules, 2004. The Tribunal had previously remanded the matter to consider the issue in light of the retrospective amendment introduced by the Finance Act, 2010, emphasizing that the requirement to file a declaration was procedural. Citing precedents, including the ICMC Corporation Ltd. case, the Tribunal held that when the appellant had reversed the proportionate credit, the demand for payment of 8% / 10% of the value of clearances could not be sustained.

Consequently, the Tribunal found the demand to be unjustified, set aside the impugned order, and allowed the appeal with any consequential relief. The decision was based on the interpretation that the procedural requirement to file a declaration under Rule 6(3) of CENVAT Credit Rules, 2004, was met by the appellant's action of reversing the credit, leading to the dismissal of the demand for additional payment.

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