CENVAT Credit option under Rule 6: retrospective intimation disallowed; option effective prospectively and simultaneous options prohibited

CENVAT credit rules require that option for treatment of input services be exercised in accordance with Rule 6 procedures and is effective only prospectively; retrospective intimation is not permitted, and the option cannot be applied retroactively to earlier tax periods. An assessee may not simultaneously adopt mutually exclusive options for allocation between exempt and taxable services; once an option is chosen it must be adhered to. Failure to follow the procedural requirements for exercising the option is not a mere formality and may attract recovery, interest and penalties where credits were taken and later reversed contrary to the prescribed procedure.

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Issues Involved:
1. Whether Rule 6 stipulates any time period within which the assessee must inform the department about exercising the option under Rule 6(3) of CCR.
2. Whether non-intimation of option under Rule 6(3) is at best a procedural lapse for which substantial benefit ought not to be denied.
3. Whether as per the Statute the option filed by the appellant under Rule 6(3)(ii) of CCR, 2004 is effective only prospectively.
4. Whether the option under Rule 6(2) of CENVAT Credit Rules, 2004, for credit of inputs used for payment of duty on taxable services and Rule 6(3) for credit of common input services used for both exempted and taxable service, can be availed simultaneously.
5. Whether interest or penalty is liable as proportionate reversal of credit is tantamount to non-availment of the input service credit of the common inputs.

Detailed Analysis:

1. Time Period for Intimation under Rule 6(3):
The tribunal examined whether Rule 6 stipulates any time period within which the assessee must inform the department about exercising the option under Rule 6(3). The tribunal noted that Rule 6(3A)(a) requires the manufacturer or service provider to intimate in writing to the Superintendent of Central Excise while exercising the option under Rule 6(3)(ii). This intimation must include particulars and the date from which the option is exercised or proposed to be exercised. Rule 6(3A)(v) further requires the taxpayer to declare the amount of CENVAT credit lying in balance as on the date of exercising the option. It was concluded that the intimation must be given on the date of exercising the option, making it effective only prospectively.

2. Procedural Lapse and Substantive Benefit:
The tribunal addressed whether non-intimation of option under Rule 6(3) is merely a procedural lapse. The tribunal emphasized that the procedures and conditions stated in Rule 6 are mandatory and not merely procedural. The tribunal cited the Supreme Court's judgment in M/s Eagle Flask Industries Ltd. Vs. CCE, Pune, which held that declarations and undertakings are foundational for availing benefits and cannot be considered merely procedural. The tribunal concluded that non-compliance with the procedures and conditions of Rule 6 cannot be considered non-mandatory, and thus, substantial benefits cannot be granted for procedural lapses.

3. Prospective Effectiveness of Option under Rule 6(3)(ii):
The tribunal examined whether the option filed by the appellant under Rule 6(3)(ii) of CCR, 2004 is effective only prospectively. The tribunal reaffirmed that the intimation given to the department is effective only prospectively, as per the clear reading of Rule 6(3)(ii) and Rule 6(3A) of CCR, 2004. The tribunal held that allowing retrospective declarations would lead to administrative difficulties and potential evasion of duty, thus supporting the lower authority's decision that the option is effective only prospectively.

4. Simultaneous Availment of Rule 6(2) and Rule 6(3):
The tribunal addressed whether the options under Rule 6(2) and Rule 6(3) can be availed simultaneously. It referred to a previous judgment (Final Order No. 42327/2018) which clarified that Rule 6(1) is a substantive provision prohibiting CENVAT credit on inputs used for exempted goods or services unless the conditions of Rule 6(2) are met. Rule 6(3) provides an alternative for those not maintaining separate accounts as per Rule 6(2). The tribunal concluded that an assessee cannot avail of both options concurrently, as it would defeat the purpose of the rules and lead to potential misuse of credits. The tribunal upheld the lower authority's decision that the appellant cannot simultaneously avail the benefits under Rule 6(2) and Rule 6(3).

5. Interest and Penalty on Proportionate Reversal of Credit:
The tribunal examined whether interest or penalty is liable when proportionate reversal of credit is done. The tribunal noted that the provisions of Rule 6 are clear and unambiguous. The appellant had taken credits suo moto even after previous show cause notices and orders from the department. The tribunal cited the Supreme Court's judgment in Smt. Ujjam Bai Vs State of Uttar Pradesh, which held that decisions by taxing authorities within their jurisdiction are binding, even if erroneous. The tribunal concluded that the appellant's plea of ambiguity in Rule 6 and the claim of unsustainability of interest and penalty due to proportionate reversal of credit are untenable. The tribunal upheld the imposition of interest and penalty.

Conclusion:
The tribunal dismissed the appeal, upholding the lower authority's decision on all issues. The order emphasized the mandatory nature of procedural compliance under Rule 6, the prospective effect of intimation under Rule 6(3), the prohibition on simultaneous availment of options under Rule 6(2) and Rule 6(3), and the liability for interest and penalty despite proportionate reversal of credit.

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