Appellate tribunal reverses payment order under Cenvat Credit Rules, emphasizing compliance with legal provisions

The appellate tribunal set aside the order demanding payment under Rule 6(3) of the Cenvat Credit Rules, 2004, as the appellant had already reversed the proportionate credit of common input services used in trading exempted goods at the head office. The tribunal found the additional demand unjustified and unsustainable, emphasizing the importance of following legal provisions and established principles. The appeal was allowed, providing relief to the appellant and reinforcing the necessity of compliance with Cenvat Credit Rules.

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Issues: Application of Rule 6(3) of the Cenvat Credit Rules, 2004 on availing Cenvat credit for common input services used in trading of goods.

Analysis:
1. The appellant, engaged in manufacturing pesticides and bio-extracts, availed Cenvat credit on inputs and input services, including common input services used for trading exempted goods. The Revenue contended that the appellant should pay 5/6% of the value of traded goods under Rule 6(3) of the Cenvat Credit Rules, 2004.

2. The appellant argued that their head office in Delhi handled trading activities, and they had reversed the proportionate credit of common input services along with interest. However, the Adjudicating Authority held that the reversal at the head office did not fulfill the legal requirement of reversing Rule 6(3) at the factory level. Consequently, a demand of approximately &8377; 66,67,431/- and &8377; 9,19,502/- was confirmed, along with interest and a penalty under Rule 15 of the Cenvat Credit Rules, 2004.

3. The appellate tribunal noted that the reversal of Cenvat credit by the head office effectively nullified the credit availed by the appellant for common services used in trading. Relying on established legal principles, the tribunal found that demanding further payment under Rule 6(3) after such reversal was unjustified. Citing precedents from judicial and quasi-judicial authorities, the tribunal concluded that the impugned order was unsustainable.

4. Consequently, the tribunal set aside the order, allowing the appeal and providing consequential relief to the appellant. The decision emphasized that when proportionate credit attributable to exempted goods/services is reversed, additional demands under Rule 6(3) are not legally tenable. The judgment reaffirmed the importance of adhering to the provisions of the Cenvat Credit Rules and established legal principles in such matters.

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