Tribunal dismisses appeal, upholds findings on improper CENVAT Credit use, justifies penalties.

The appeal was dismissed, and the Tribunal upheld the original authority's findings. The appellants were found to have improperly availed CENVAT Credit on common input services by selectively applying Rule 6(2) and Rule 6(3), which was against the legal provisions. The invocation of the extended period and penalties was justified due to the appellants' deliberate actions.

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Issues Involved:
1. Conflict of interest due to the involvement of a Technical Member who issued the Show Cause Notice.
2. Legitimacy of availing CENVAT Credit on common input services.
3. Compliance with Rule 6 of CENVAT Credit Rules, 2004.
4. Scope of remand directions by the Tribunal.
5. Eligibility for proportionate credit.
6. Invocation of extended period and penalty.

Issue-wise Detailed Analysis:

1. Conflict of Interest:
The Hon’ble Madras High Court remanded the case for a de novo decision due to a conflict of interest. The Technical Member who issued the Show Cause Notice was part of the earlier Tribunal Bench, which was not disclosed during the hearing. The case was re-heard on 06.08.2018 and 09.08.2018.

2. Legitimacy of Availing CENVAT Credit:
The appellants availed CENVAT Credit on input services used for both taxable and exempted services. They claimed that since the credit on common input services was below the 20% restriction of total service liability, they need not restrict utilization. The Revenue objected, arguing that full credit on common input services without restriction was improper.

3. Compliance with Rule 6 of CENVAT Credit Rules, 2004:
The original authority found that the appellants maintained separate accounts for certain input services and availed full credit for taxable services. However, for common input services, they followed Rule 6(3) selectively, which was against the provisions. Rule 6(1) prohibits availing credit on input services used for exempted services unless separate accounts are maintained as per Rule 6(2). Rule 6(3) provides an option for those not maintaining separate accounts, but both rules cannot be applied selectively.

4. Scope of Remand Directions by the Tribunal:
The appellants argued that the original authority’s order went beyond the Tribunal’s remand directions. However, the Tribunal had made an open remand for de novo adjudication, allowing the original authority to re-examine the issue comprehensively.

5. Eligibility for Proportionate Credit:
The appellants contended they should be eligible for proportionate credit attributable to taxable output services. The Tribunal noted that during the relevant period, no provision allowed for such proportionate credit.

6. Invocation of Extended Period and Penalty:
The original authority invoked the extended period and imposed penalties, finding that the appellants knowingly switched to a system of selectively following Rule 6(2) and Rule 6(3), which led to the dispute. The Tribunal agreed with this finding, noting that the appellants’ actions were against the principles of the CENVAT Credit Rules.

Conclusion:
The appeal was dismissed, and the Tribunal upheld the original authority’s findings. The appellants were found to have improperly availed CENVAT Credit on common input services by selectively applying Rule 6(2) and Rule 6(3), which was against the legal provisions. The invocation of the extended period and penalties was justified due to the appellants’ deliberate actions.

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