Appeals allowed, setting aside demand for payment of exempted services. Proper reversal of CENVAT credit.

The appeals were allowed, setting aside the Commissioner (A)'s order that confirmed the demand for payment of exempted services for the years 2012-13 and 2013-14. The appellants were found to have properly reversed the proportionate CENVAT credit under Rule 6(3)(ii) read with Rule 6(3A) of the CENVAT Credit Rules, 2004. The judicial member determined that the demand for payment of exempted services was unjustified, leading to the unsustainable nature of the impugned order in law.

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Issues involved:
- Appeal against the impugned order dated 8.12.2017 passed by the Commissioner (A)
- CENVAT credit availed on inputs, capital goods, and input services
- Maintaining separate accounts for dutiable goods and exempted services
- Demand for the years 2009-10 to 2013-14
- Proportionate credit reversal under Rule 6(3)(ii) read with Rule 6(3A)
- Option under Rule 6(3A)(c)(iii) of CCR for reversing credit
- Payment of interest and penalty
- Appellant's exercise of option under Rule 6(3) of CCR
- Quantification of demand under Rule 6(3)(i) of CCR, 2004

Analysis:

The appellants filed two appeals against the Commissioner (A)'s order, which partially modified the Orders-in-Original but confirmed the demand for the years 2012-13 and 2013-14. The issue involved in both appeals was identical, leading to their joint disposal. The appeals pertained to the manufacture of industrial special lubricating greases and the availing of CENVAT credit on various inputs. The appellants were found not maintaining separate accounts for input services used in dutiable goods and exempted services, leading to the demand for payment under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.

During the audit, it was noted that the appellants were availing CENVAT credit on input services used in both dutiable goods and exempted services. Two show-cause notices were issued for different periods, and after due process, the demand was confirmed by the original authority. The appellants contended that the impugned order was contrary to legal precedents and the provisions of Rule 6, arguing that they had already reversed proportionate credit under Rule 6(3)(ii) read with Rule 6(3A). They claimed to have informed the department of the credit reversal and that the demand for payment of exempted services was erroneous.

The appellant's counsel cited various decisions in support of their argument and emphasized that once the proportionate credit was reversed, the question of interest and penalty did not arise. On the other hand, the Assistant Commissioner defended the impugned order, stating that the appellant had not exercised the option under Rule 6(3) of the CCR. However, after considering both parties' submissions and the records, the judicial member found that the appellants had indeed reversed the proportionate CENVAT credit as required by the rules. Therefore, the demand for payment of exempted services was deemed unjustified, and the impugned order was held to be unsustainable in law, leading to the allowance of both appeals by setting aside the Commissioner (A)'s order.

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