Manufacturer not liable for CENVAT credit recovery on exempt medicaments after debiting entire credit on input services

CESTAT Mumbai held that appellant manufacturing both taxable and exempt medicaments was not liable for 5% or 10% recovery on exempt goods value. Appellant had debited entire CENVAT credit on input services and did not avail credit on inputs for exempt products. Following precedent in Secure Meters Ltd., tribunal ruled that debiting availed credit is equivalent to never availing it. Since no CENVAT credit was effectively availed for exempt goods, recovery provisions did not apply. Demand and penalties were set aside, appeal allowed.

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Issues involved:
The issues involved in this case include the availing of cenvat credit on service tax paid on input services used for both dutiable and exempted final products, the reversal of cenvat credit, and the liability to pay 5% or 10% of the value of exempted final products under Rule 6(3)(i) of Cenvat Credit Rules, 2004.

Summary of Judgment:

Issue 1: Availing of cenvat credit on service tax for both dutiable and exempted final products:
The appellant, engaged in manufacturing medicaments, availed cenvat credit on service tax paid on input services used for both dutiable and exempted final products. However, investigations revealed that the appellant did not maintain separate accounts for services utilized for exempted and dutiable products. The Revenue calculated the amount to be demanded from the appellant under Rule 6(3)(i) of Cenvat Credit Rules, resulting in a demand of around Rs.3.08 crores. The appellant contended that they had reversed the entire cenvat credit availed on service tax paid on input services. The Tribunal noted that the appellant had indeed debited the entire cenvat credit, making it as if the credit was never availed. Citing previous rulings, including one by the Hon'ble Supreme Court, the Tribunal held that the appellant was not liable to pay the demanded amount. The impugned order was set aside, and the demand and penalties were revoked.

Issue 2: Liability to pay 5% or 10% of the value of exempted final products:
The law requires the recovery of 5% or 10% of the value of exempted final products if cenvat credit is availed on services used for both exempted and dutiable goods. However, in this case, the appellant had debited the entire availed cenvat credit, rendering the question of recovery of 5% or 10% irrelevant. Relying on a ruling by the Hon'ble Rajasthan High Court and a previous Tribunal order, the Tribunal set aside the impugned order, revoking the demand and penalties imposed on the appellant.
Separate Judgment:
No separate judgment was delivered by the judges in this case.

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