2023 (11) TMI 465 - AT - Central Excise

Tribunal Overturns Order on Cenvat Credit Repayment; Case Remanded for Recalculation Based on Appellant's Data.

M/s. VVF (India) Ltd. Versus Commissioner of Central Excise, Mumbai-I

The Tribunal set aside the original authority's order, which demanded repayment of cenvat credit availed on common input services used for both trading ... CENVAT Credit - common input services such as security service, commission, transport of goods by road, cleaning services etc. used for trading and manufacturing activities - Rule 6(3)(i) of Cenvat Credit Rules, 2004 - HELD THAT:- The show cause notice initially states that Rs.51,45,637/- is an amount recoverable under Rule 6(3)(i) of Cenvat Credit Rules, 2004 but when it comes to para 7 of the same show cause notice, Revenue calls upon the appellant to show cause as to why inadmissible cenvat credit availed by the appellant amounting to Rs.51,45,637/- should not be recovered. Further, the original authority has passed the order confirming the demand of cenvat credit availed of the input service credit of Rs.51,45,637/-. It is to be noted here that there was a discrepancy in the show cause notice. Initially the said amount was called as an amount recoverable and subsequently the same amount was called as inadmissible cenvat credit availed. The fact is that the show cause notice does not establish that inadmissible cenvat credit of Rs.51,45,637/- was ever availed. Hon’ble Telangana High Court in the case of Tiara Advertising [2019 (10) TMI 27 - TELANGANA AND ANDHRA PRADESH HIGH COURT] has held that it is not Revenue which will choose the option to be exercised by the assesse out of the various options provided under Rule 6 of Cenvat Credit Rules, 2004. We also note that the appellant has undertaken to reverse cenvat credit attributable to the credit that has gone into trading. The matter needs to be remanded to the original authority with the direction to recover that quantum of cenvat credit which is part of the cenvat credit availed on common input services and which is attributable to exempted activity of trading - Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether cenvat credit on common input services, part of which is used for exempted trading activity, is recoverable where the show cause notice does not specify the quantum of credit attributable to trading. 2. Whether Revenue can, under Rule 6(3)(i) of the Cenvat Credit Rules, 2004, select one of the options available to the assessee for treatment of input service credit attributable to exempted activity, when the assessee has not exercised any option. 3. Whether a show cause notice and adjudication that alleges 'inadmissible cenvat credit availed' is valid where the notice alternately characterises the amount as 'recoverable' and fails to establish that inadmissible credit was in fact availed. ISSUE-WISE DETAILED ANALYSIS Issue 1: Recoverability of cenvat credit on common input services without specification of quantum attributable to exempted trading Legal framework: Rule 6 of the Cenvat Credit Rules, 2004 governs availment and reversal/recovery of cenvat credit in cases where input/input services are used for exempted goods or exempted services; Rule 14 provides for recovery mechanisms for inadmissible credit. Precedent Treatment: The Tribunal refers to and follows the principle in the ruling of the High Court (Tiara Advertising) that the options under Rule 6 are to be exercised by the assessee and not chosen by Revenue. Interpretation and reasoning: The record shows the show cause notice and order-in-original demand a sum of Rs.51,45,637 as recoverable/inadmissible credit but fail to specify or establish the quantum of credit actually availed on common input services that is attributable to the exempted trading activity. The adjudicating authority confirmed the demand without demonstrating how much of the cenvat credit was actually used for trading. Given the absence of factual specification and calculation in the notice and order, the Tribunal finds the demand unsustainable in its present form. Ratio vs. Obiter: Ratio - A demand for recovery of cenvat credit must be supported by specification and proof of the quantum of credit availed and attributable to exempted activity; absent such specification, the demand cannot be sustained and remand is appropriate. (This forms the operative ratio of the decision.) Conclusions: The matter is remanded to the original authority with directions to determine and recover only that portion of cenvat credit availed on common input services which is attributable to the exempted trading activity, after giving the assessee opportunity to provide necessary data. Issue 2: Revenue's authority to choose an option under Rule 6(3)(i) when assessee has not exercised an option Legal framework: Rule 6 sets out three options available to an assessee for handling cenvat credit where input services are used partly for exempted activities; procedural and substantive consequences follow from the option chosen by the assessee. Precedent Treatment: The Tribunal relies on the High Court ruling (Tiara Advertising) holding that the statutory scheme does not empower Revenue to select one of the options on behalf of the assessee when the assessee has not exercised any option. Interpretation and reasoning: The Tribunal notes that the assessee asserted it had not availed credit attributable to trading or, alternatively, is willing to reverse the attributable portion. Revenue attempted to treat the full amount as recoverable without demonstrating that the assessee had availed the credit or without exercising the options available under Rule 6. Given the principle that the choice under Rule 6 is that of the assessee, Revenue cannot unilaterally impose an option or treat the entire credit as inadmissible without proper computation and notice. Ratio vs. Obiter: Ratio - Revenue cannot choose an option under Rule 6 on behalf of the assessee; the onus is on Revenue to establish the quantum of credit availed and attributable to exempted activity if it seeks recovery. (Operative ratio reinforcing who must choose and who must prove.) Conclusions: Revenue must compute the attributable credit and afford the assessee the opportunity to either demonstrate non-availment or to reverse the attributable credit; Revenue cannot simply impose recovery by selecting an option under Rule 6. Issue 3: Validity of show cause notice where characterization of amount is inconsistent and inadmissible credit is not established Legal framework: Principles of fair adjudication require that a show cause notice clearly state the allegations and the factual/legal basis, specifying the amounts and the grounds for recovery under Rules 6 and 14. Precedent Treatment: Applied general principles of notice-law and the cited High Court authority emphasizing proper exercise of options and clear specification. Interpretation and reasoning: The show cause notice in the record initially refers to the sum as 'recoverable' under Rule 6(3)(i) and then, in another paragraph, labels the same amount as 'inadmissible cenvat credit availed.' This inconsistency, coupled with absence of any factual finding or calculation in the notice or order showing that inadmissible credit was actually availed, renders the notice deficient. The adjudicatory process must identify and establish the precise quantum sought to be recovered; mere assertion of a lump-sum demand without breakdown or proof is insufficient. Ratio vs. Obiter: Ratio - A show cause notice must clearly and consistently state the nature of the allegation and quantify the credit alleged to be inadmissible or recoverable; failure to do so undermines the validity of the demand. (Operative for this case.) Conclusions: The impugned order confirming demand is set aside for lack of adequate specification and proof; the matter is remanded for fresh adjudication with clear computation and opportunity to the assessee to cooperate and provide data. Cross-references See Issue 1 and Issue 2 - both issues converge on the necessity for Revenue to specify quantum and to respect the assessee's options under Rule 6; remand is directed to allow proper computation and exercise/implementation of the statutory options.