Appellate tribunal affirms compliance with Rule 6(3), upholds reversal of CENVAT credit for exempted goods

The appellate tribunal upheld the impugned order, rejecting the revenue's appeal as the respondent complied with Rule 6 (3) by reversing the CENVAT credit for inputs and input services used in manufacturing exempted goods. The respondent's payment of the proportionate credit before the retrospective amendment was deemed correct, as per the legislation effective from 10.09.2004. The demand for payment was dropped as the respondent had paid the CENVAT credit with interest for the exempted goods, demonstrating compliance with the rules.

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Issues:
1. Interpretation of Rule 6 (3) of CENVAT Credit Rules, 2004 regarding maintenance of separate records for dutiable and exempted goods.
2. Applicability of retrospective amendment to Rule 6 (3) regarding the reversal of CENVAT credit.
3. Compliance with the provisions of Rule 6 (3) for payment of an amount equivalent to CENVAT credit attributable to inputs and input services used in manufacturing exempted goods.

Analysis:

Issue 1: Interpretation of Rule 6 (3) of CENVAT Credit Rules, 2004
The case involved a dispute where the respondent, a manufacturer of excisable goods, cleared products to government organizations under exemption notifications without maintaining separate accounts for inputs and input services used for manufacturing exempted goods. The revenue authorities demanded payment equivalent to a percentage of the value of exempted goods, citing non-compliance with Rule 6 (2) mandating separate records. The adjudicating authority accepted the respondent's contention that they had reversed the attributable CENVAT credit, leading to the dropping of the demand. The appellate tribunal noted that the demand was for excisable goods and the respondent had paid the CENVAT credit with interest for the exempted goods, thus complying with Rule 6 (3).

Issue 2: Applicability of Retrospective Amendment to Rule 6 (3)
The respondent argued that a retrospective amendment allowed manufacturers to reverse CENVAT credit before 01.04.2008 by producing a Chartered Accountant's Certificate and paying the amount within six months of enactment. The tribunal acknowledged the retrospective amendment to Rule 6 (3) and clarified that the respondent, by paying the proportionate credit before the amendment, correctly followed the legislation effective from 10.09.2004, as per a department circular.

Issue 3: Compliance with Rule 6 (3) for Payment of CENVAT Credit
The tribunal highlighted that Rule 6 (3) (ii) required manufacturers to reverse only the CENVAT credit attributable to inputs and input services used in manufacturing exempted goods. As the respondent had reversed the credit on inputs and input services for exempted goods, as evidenced in the records, the tribunal upheld the impugned order, stating it correctly applied the retrospective amendment to Rule 6 (3). Consequently, the appeal by the revenue was rejected.

In conclusion, the appellate tribunal found that the impugned order was legally sound, as the respondent had complied with the provisions of Rule 6 (3) by reversing the CENVAT credit attributable to inputs and input services used in manufacturing exempted goods, leading to the rejection of the appeal.

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