Appellant's Compliance with CENVAT Credit Rules Remanded for Verification

The Tribunal held that the appellant's reversal of proportionate credit post-GST was sufficient compliance with Rule 6(3A) of the CENVAT Credit Rules. The matter was remanded to the original authority for verification. The Tribunal also ruled that if the appellant had a sufficient CENVAT credit balance and reversed proportionate credit before utilization, they are not liable to pay interest. The original authority was directed to verify if the appellant had complied with Rule 6(3A) and to pass an order after providing a reasonable opportunity to the appellant.

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Issues:
1. Availing CENVAT credit on common inputs for manufacturing both taxable and exempted goods.
2. Failure to pay 6% of the value of exempted goods under Rule 6(3)(i) of CENVAT Credit Rules, 2004.
3. Reversal of proportionate credit under Rule 6(3A) of the CENVAT Credit Rules.
4. Question of payment of interest and penalty.

Analysis:

Issue 1: Availing CENVAT credit on common inputs
The appellant, engaged in manufacturing Water Filtration Equipment and Reverse Osmosis Systems, availed CENVAT credit on inputs for both taxable and exempted goods. The appellant claimed exemption under Notification No.12/2012 for Reverse Osmosis Systems. The original authority confirmed a demand for non-payment of 6% of the value of exempted goods due to availing common input credit without maintaining separate inventory.

Issue 2: Failure to pay 6% of the value of exempted goods
The appellant contested that they maintained separate accounts for inputs used in dutiable and exempted goods but not for common input services. The appellant argued that they had sufficient CENVAT credit balance, which was not utilized, and a portion was reversed. The appellant claimed compliance with Rule 6 of CENVAT Credit Rules, 2004, post-GST introduction, by reversing proportionate credit.

Issue 3: Reversal of proportionate credit
The Tribunal found that the appellant had maintained separate records for inputs but not for common input services. The appellant claimed to have reversed more credit than required post-GST. Citing judicial precedents, the Tribunal held that reversal of proportionate credit is sufficient compliance with Rule 6(3A) of the CENVAT Credit Rules. The matter was remanded to the original authority for verification.

Issue 4: Question of payment of interest and penalty
The Tribunal observed that if the appellant had a sufficient CENVAT credit balance and reversed proportionate credit before utilization, they are not liable to pay interest. Citing a Karnataka High Court decision, the Tribunal allowed the appeal by remanding the matter to verify if the appellant had reversed proportionate credit as per Rule 6(3A) of the CENVAT Credit Rules. The original authority was directed to pass an order after affording a reasonable opportunity to the appellant.

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