2021 (11) TMI 426 - AT - Central Excise

Tribunal rules in favor of assessee on CENVAT credit reversal and penalty imposition

The Tribunal held that the assessee was entitled to reverse the proportionate amount of CENVAT credit as it met the requirements under Rule 6(1) and 6(2). ... Reversal of CENVAT Credit - inputs and input services used in production of electricity to the extent it is wheeled out - Rule 6(5) of CCR - Can a show cause notice be issued demanding an amount under Rule 6(3A) of the CCR? - levy of penalty - HELD THAT:- Rule 6 of the CCR lays down ‘Obligations of the assessee‘. These obligations are not in the form of a charging section demanding a duty but are obligations to avail CENVAT credit. Just as no assessee can be compelled to maintain separate records under Rule 6(2), no assessee can be compelled to pay an amount under Rule 6(3). The obligations under Rule 6 are in the form of various alternatives and the assessee is free to choose any option. There is no mechanism either in the CCR or in the Act to enforce any of the options or one of the options on the assessee. If the assessee does not choose any of the options and still avails CENVAT credit, such irregularly availed CENVAT credit can, of course, be recovered under Rule 14 of the CCR. Penalty u/r 15 - HELD THAT:- Rule 15 provides for imposition of penalty if CENVAT credit has been wrongly availed which allegation must be made in the show cause notice with a proposal to recover such wrongly availed CENVAT credit under Rule 14 but such a demand has not been made. Instead, a demand of an amount equal to 8%/ 10% of the exempted goods under Rule 6(3) has been made in the show cause notice, which is only an option to the assessee and cannot be demanded under Rule 14. Since the show cause notice itself has been issued without authority of law, any penalty imposed in the impugned order in pursuance of it needs to be set aside too. Appeal allowed - decided in favor of appellant. Issues Involved:1. Entitlement of the assessee to reverse proportionate amount of CENVAT credit.2. Exclusion of credit taken on services under Rule 6(5) while reversing.3. Legitimacy of show cause notice demanding an amount under Rule 6(3A) of the CCR.4. Sustainability of the penalty imposed upon the appellant.Detailed Analysis:1. Entitlement to Reverse Proportionate Amount of CENVAT Credit:The assessee argued that it is entitled to reverse the proportionate amount of CENVAT Credit because the inputs and input services were used in the production of electricity, part of which is wheeled out. The assessee cited the Supreme Court judgment in *Chandrapur Magnet Wires (P) Ltd. vs. Collector of Central Excise, Nagpur* to support its claim. The Revenue, however, contended that the assessee did not meet the procedural requirements specified under Rule 6(3A) post-1.4.2008 and the Finance Act, 2010 for the period prior to 1.4.2008. The Tribunal found that proportionate reversal meets the requirements of Rule 6(1) and Rule 6(2), and that the technical non-compliance (like not making a declaration to the Superintendent) should not deprive the assessee of its entitlement. The Tribunal concluded that the reversal of proportionate CENVAT credit is sustainable under Rule 6(3A) and the Finance Act, 2010.2. Exclusion of Credit Taken on Services under Rule 6(5) While Reversing:The assessee contended that the credit on certain services was admissible under Rule 6(5) unless such services were used exclusively for the manufacture of exempted goods. The Commissioner, however, did not allow this exclusion. The Tribunal held that Rule 6(5) explicitly excludes certain services from the provisions of Rule 6(1), 6(2), and 6(3). Therefore, the assessee need not reverse proportionate CENVAT Credit on such input services unless they are exclusively used for exempted goods.3. Legitimacy of Show Cause Notice Demanding an Amount under Rule 6(3A) of the CCR:The Tribunal found that Rule 6 of the CCR provides various options to the assessee, and the authorities cannot enforce a specific option. The High Court of Telangana and Andhra Pradesh in *Tiara Advertising* held that the authorities cannot choose an option for the assessee and enforce it. Therefore, the show cause notice demanding an amount under Rule 6(3) is without authority of law and needs to be set aside.4. Sustainability of the Penalty Imposed upon the Appellant:The penalty was imposed under Rule 15, which provides for penalties if CENVAT credit is wrongly availed. However, the Tribunal noted that the show cause notice demanded an amount under Rule 6(3), which is an option and not a mandatory provision. Since the show cause notice itself was without authority of law, any penalty imposed in pursuance of it also needs to be set aside.Conclusion:The Tribunal concluded that:- Reversal of proportionate amount of CENVAT credit by the assessee meets the requirements under Rule 6(1) and 6(2).- The assessee correctly excluded input services under Rule 6(5) while reversing CENVAT credit.- The show cause notice demanding an amount under Rule 6(3) is without authority of law.- The penalty imposed is not sustainable.The impugned order was set aside, the appeal of the assessee was allowed, and the appeal filed by the Revenue was rejected.