2019 (11) TMI 952 - AT - Service Tax

Tribunal remands for verification of reversed amounts, potential set aside of demands, interest, and penalties.

The tribunal allowed the appeal by remanding the matter for verification of the amounts reversed by the appellant. If verified, the demands, interest, and ... Removal of inputs as such under Rule 3(5) of CCR 2004 - Liability under Rule 6(3) of CCR 2004 - Maintenance of separate accounts under Rule 6(2) of CCR 2004 - Proportionate reversal of CENVAT credit based on standard norms - Verification/remand for computation and reconciliation of reversed creditRemoval of inputs as such under Rule 3(5) of CCR 2004 - Liability under Rule 6(3) of CCR 2004 - Whether reversal of credit under Rule 3(5) in respect of inputs removed as such precludes a demand under Rule 6(3) for the same clearances. - HELD THAT: - The Tribunal examined the interplay between Rule 3(5) and Rule 6(3) of CCR 2004 and held that Rule 3(5) applies without distinction as to the purpose of removal of inputs as such. Where the appellant has reversed the CENVAT credit attributable to inputs removed as such under Rule 3(5), that credit has already been discharged and Rule 6(3) cannot be invoked for the same clearances. The Bench therefore concluded that demands under Rule 6(3) in respect of inputs removed as such, after reversal under Rule 3(5), are not sustainable. [Paras 10]Demand under Rule 6(3) in respect of inputs cleared as such after reversal under Rule 3(5) is set aside.Maintenance of separate accounts under Rule 6(2) of CCR 2004 - Proportionate reversal of CENVAT credit based on standard norms - Verification/remand for computation and reconciliation of reversed credit - Whether the appellant's method of proportionately reversing CENVAT credit (based on standard pharmaceutical norms) satisfies the requirement of Rule 6(2) and whether the demand under Rule 6(3) in respect of inputs used in manufacture of exempted products is sustainable. - HELD THAT: - The Tribunal observed that Rule 6(2) requires maintenance of separate accounts for inputs used in exempted and dutiable outputs but does not mandate separate physical stocks or distinct invoices. Where, on facts, an assessee has adopted a method of proportionate reversal based on established norms and thereby, in effect, maintained separate accounts, such an approach can fall within the ambit of Rule 6(2). The Bench noted that the Commissioner (Appeals) doubted how the appellant computed the reversals, but the appellant produced worksheet details in the appeal book (page 153). Given that the correctness of the computation is a factual/verificatory question, the Tribunal did not decide the quantification on merits but remitted the matter to the original authority to verify the amounts reversed. The Tribunal directed that if verification establishes that the appellant has indeed reversed the credit attributable to inputs used in exempted manufacture as claimed, the demands, interest and penalties related thereto are not sustainable. [Paras 11, 12]Matter remitted to the original authority for limited purpose of verifying the amounts reversed; if verified, the demand, interest and penalties shall stand set aside.Final Conclusion: Appeal allowed in part: the demand under Rule 6(3) in respect of inputs removed as such after reversal under Rule 3(5) is set aside; the question whether proportionate reversals satisfy Rule 6(2) is remitted to the original authority for verification of calculations and, if established, related demand, interest and penalties are to be quashed. Issues Involved:1. Liability to pay an amount under Rule 6(3) of CCR 2004 for inputs cleared as such for sale.2. Liability to pay an amount under Rule 6(3)(1) for reversed proportionate CENVAT Credit on inputs used in the manufacture of exempted products.3. Levy of interest on the demands.4. Imposition of penalties on the appellant.Detailed Analysis:1. Liability to pay an amount under Rule 6(3) of CCR 2004 for inputs cleared as such for sale:The appellant, a manufacturer of pharmaceuticals, availed CENVAT Credit under CCR 2004 and cleared inputs as such for sale after reversing the CENVAT Credit availed on them under Rule 3(5) of CCR 2004. The Revenue contended that such activity amounts to trading, an exempted service, requiring payment under Rule 6(3). The appellant argued that Rule 3(5) allows for the removal of inputs as such without distinguishing the purpose, and they complied by reversing the credit. The tribunal held that Rule 3(5) does not differentiate based on the purpose of removal and having reversed the credit, the appellant is not covered by Rule 6(3). Thus, the demand on this account was set aside.2. Liability to pay an amount under Rule 6(3)(1) for reversed proportionate CENVAT Credit on inputs used in the manufacture of exempted products:The appellant reversed proportionate CENVAT Credit on inputs used in the manufacture of both dutiable and exempted products, claiming compliance with Rule 6(2). The Revenue argued that the appellant did not maintain separate accounts as required and thus fell under Rule 6(3), necessitating payment of an amount equal to 6% of the value of exempted goods or as determined under Rule 6(3A). The tribunal noted that Rule 6(2) does not mandate separate stocks of inputs but requires separate accounts. The appellant effectively maintained such accounts by reversing credit as per a standard formula. The tribunal remitted the matter to the original authority to verify the amounts reversed, holding that if verified, the demand, interest, and penalties are not sustainable.3. Levy of interest on the demands:The tribunal did not explicitly address the issue of interest separately but implied that if the reversed amounts are verified, the interest demand would not be sustainable.4. Imposition of penalties on the appellant:Similarly, the tribunal implied that if the reversed amounts are verified, the penalties imposed would not be sustainable.Conclusion:The appeal was allowed by remanding the matter to the original authority for verification of the amounts reversed by the appellant. If verified, the demands, interest, and penalties would be set aside. The judgment emphasized the appellant's compliance with Rule 3(5) for inputs cleared as such and the effective maintenance of separate accounts under Rule 6(2) through proportionate reversal of credit.