2018 (10) TMI 1540 - AT - Central Excise

Tribunal grants appeal, emphasizes flexibility in Rule 6, reverses 6% demand

M/s. Vishwa Structrual Engineering Pvt Ltd Versus Commissioner Of Central Tax, Belagavi Commissionerate

The Tribunal allowed the appeal, remanding the case to verify the appellant's compliance with Rule 6 provisions and the reversal of proportionate credit. ... CENVAT Credit - inputs/input services used for dutiable and exempted service - Rule 6(2) of CCR, 2004 - Held that:- Rule 6 gives three options to the appellant to reverse the credit and it is the option of the assessee to choose any option which is beneficial to him if he is unable to maintain separate books of accounts and demanding 6% of the value of exempted goods and services is not sustainable in law. The appellant has given the calculation in the ground of appeal that as per the appellant, the total amount credit to be reversed proportionately comes to ₹ 49,647/- which he has already reversed and therefore, the demand of 6% on the value of exempted services is not tenable. This needs to be remanded back to the original authority to verify whether the appellant has reversed the proportionate credit as claimed by him as per Rule 6(3A) of the CCR, 2004 - appeal allowed by way of remand. Issues:1. Applicability of Rule 6 of CENVAT Credit Rules, 2004 in case of common input services for manufacturing and trading activities.2. Interpretation of options provided under Rule 6 for reversing credit in the absence of separate accounts.3. Retrospective nature of amendments to Rule 6.4. Judicial precedents supporting the reversal of proportionate CENVAT Credit.5. Validity of the demand for 6% on the value of exempted services.Analysis:Issue 1: Applicability of Rule 6 of CENVAT Credit Rules, 2004The appellant, engaged in manufacturing and trading activities, availed CENVAT Credit for common input services. The Department raised concerns regarding the lack of separate accounts for dutiable and exempted services, leading to a demand for recovery. The Deputy Commissioner confirmed the demand, imposing penalties. The appellant contended that the 6% option cannot be forced and cited Rule 6 provisions. The Tribunal noted the appellant's reversal of a proportionate credit and remanded the case for quantification, emphasizing the need to verify the credit reversal.Issue 2: Interpretation of options under Rule 6The appellant argued that Rule 6 provides three alternatives for credit reversal in the absence of separate accounts, allowing flexibility. The Tribunal agreed, stating that demanding 6% without considering the appellant's calculation was unsustainable. The Tribunal highlighted the appellant's compliance with Rule 6(3A) and referenced judicial precedents supporting the reversal of proportionate credit in such scenarios.Issue 3: Retrospective nature of amendmentsThe appellant invoked a retrospective amendment to Rule 6, emphasizing that the amendment allowed for the reversal of proportionate credit. The Tribunal acknowledged the retrospective effect of the amendment and directed the original authority to verify the appellant's compliance with Rule 6(3A) for credit reversal.Issue 4: Judicial precedentsThe appellant relied on judicial precedents like the Gujarat High Court and the Mumbai Tribunal, supporting the reversal of proportionate CENVAT Credit even without separate accounts. The Tribunal considered these precedents and concluded that the appellant's reversal of credit aligned with legal requirements.Issue 5: Validity of the demand for 6% on exempted servicesThe Tribunal found the demand for 6% on exempted services unsustainable in light of the appellant's compliance with Rule 6 provisions and the reversal of proportionate credit. The case was remanded for the quantification of the credit to be reversed, based on the appellant's calculations and legal provisions.In conclusion, the Tribunal allowed the appeal by remanding the case to verify the appellant's compliance with Rule 6 provisions and the reversal of proportionate credit, emphasizing the flexibility provided under the rule and the retrospective nature of relevant amendments.