2022 (4) TMI 475 - AT - Central Excise

Manufacturing company wins appeal over tax credit reversal without filing declaration

Mepro Pharmaceuticals Pvt. Ltd. Versus C.C.E. & S.T. -Bhavnagar

The appellant, engaged in manufacturing pharmaceutical goods, reversed the Cenvat Credit attributed to exempted goods without filing a declaration for ... CENVAT Credit - common inputs and input services used in the manufacture of dutiable and exempted goods - non-maintenance of separate records - case of the department is that since the appellant have not filed a declaration for opting of proportionate reversal of credit, they are required to pay 5%/10% of the value of the exempted goods, demand was confirmed - HELD THAT:- The Learned Commissioner (Appeals) held that the appellant is required to pay 5%/10% on the ground that they have not filed a declaration as required for payment of proportionate credit in terms of Rule 6(3)(A) of Cenvat Credit Rules, 2004. It is not in dispute that the appellant have admittedly reversed the proportionate credit and in respect of delay, they have also paid interest. Therefore, in my view as held by the Hon’ble Supreme Court in the case of CHANDRAPUR MAGNET WIRES (P) LTD. VERSUS COLLECTOR OF C. EXCISE, NAGPUR [1995 (12) TMI 72 - SUPREME COURT], reversal of Cenvat Credit along with interest shall amount to non-availment of Cenvat Credit, if this be so, then Rule 6 is not applicable. The appellant has rightly reversed the proportionate credit along with payment of interest. Hence, no further payment can be demanded from the appellant - Appeal allowed - decided in favor of appellant. Issues:1. Whether the appellant is liable to pay 5%/10% of the value of exempted goods for not filing a declaration for opting proportionate reversal of creditRs.2. Whether the procedural lapse of not filing a declaration should be condoned, considering the appellant has reversed the proportionate credit and paid interestRs.Analysis:1. The case involved the appellant, engaged in manufacturing pharmaceutical goods, who initially availed Cenvat Credit for inputs used in manufacturing both dutiable and exempted goods. The dispute arose when the appellant reversed the Cenvat Credit attributed to exempted goods without filing a declaration for opting for proportionate reversal of credit. The Revenue demanded payment of 5%/10% of the value of exempted goods, which was contested by the appellant. The Commissioner (Appeals) upheld the demand, citing non-compliance with Rule 6(3)(A) of Cenvat Credit Rules, 2004.2. The appellant argued that the procedural lapse of not filing a declaration should be condoned as they had reversed the proportionate credit and paid interest, effectively nullifying the credit availed. The appellant contended that the non-filing of the declaration was a procedural lapse with no revenue implications. The appellant cited various judgments to support their argument.3. The Revenue, represented by the Authorized Representative, reiterated that filing a declaration for opting for proportionate credit was mandatory. They relied on legal precedents to support their stance that the appellant should pay the demanded amount due to non-compliance.4. The Member (Judicial) analyzed the submissions and records. It was noted that the appellant had indeed reversed the proportionate credit and paid interest, aligning with the Supreme Court's decision that such actions amount to non-availment of Cenvat Credit. The Member emphasized that once the appellant had reversed the credit, the Revenue could not insist on another option not chosen by the appellant. The Member considered the declaration requirement as a procedural aspect, stating that substantial benefit should not be denied due to procedural lapses. The Member found that the information required in the declaration was available with the department, hence the non-filing of the declaration should not invalidate the appellant's option for proportionate reversal. Therefore, the impugned order was set aside, and the appeal was allowed in favor of the appellant.