Proportionate Cenvat credit reversal under Rule 6(3A) applies only to common inputs, not exclusive dutiable goods inputs

CESTAT Ahmedabad ruled in favor of the appellant regarding Cenvat credit reversal under Rule 6(3A) of CCR. The tribunal held that for proportionate reversal calculations, "total Cenvat credit" includes only common inputs and input services used for both dutiable and exempted goods, not inputs exclusively used for dutiable goods. The substituted Rule 6(3A) was deemed clarificatory with retrospective effect. Additionally, following Gujarat HC precedent in Reliance Industries case, no Cenvat credit reversal was required for LPG as it constitutes a by-product generated during refining process. The impugned order was set aside and appeal allowed.

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Issues Involved:

1. Interpretation of "total Cenvat credit" u/r 6(3A) of Cenvat Credit Rules, 2004.
2. Reversal of Cenvat credit on inputs and input services used for the manufacture of LPG & SKO.
3. Consideration of "Transaction Value" vs "Assessable Value" for reversal of credit.
4. Limitation period for issuing show cause notices.

Summary:

1. Interpretation of "total Cenvat credit" u/r 6(3A) of Cenvat Credit Rules, 2004:

The primary issue is the interpretation of the term "total Cenvat credit" in Rule 6(3A) of the Cenvat Credit Rules, 2004. The department contends that "total Cenvat credit taken on Input and Input services" should be considered for reversal, whereas the appellant argues it should only include common Input and Input services used in both dutiable and exempted goods. The Tribunal observed that Rule 6(1) restricts credit on inputs used for exempted goods, indicating credit is allowed only for dutiable goods. Accepting the department's interpretation would disallow credit on inputs used for dutiable goods, which is not the intent of the Rules. The Tribunal concluded that "total Cenvat credit" should mean credit on common inputs and services, not those exclusively used for dutiable goods.

2. Reversal of Cenvat credit on inputs and input services used for the manufacture of LPG & SKO:

The Tribunal referenced the Gujarat High Court's decision in Reliance Industries Ltd. [2022(382)ELT 53(Guj.)], which held that LPG is a by-product generated in the refining process, and no reversal of credit is required. This principle applies similarly to SKO. The Tribunal found the issue settled in favor of the appellant, referencing multiple decisions, including Reliance Industries Ltd. [2023-TIOL-1130-HC-AHM-CX] and others.

3. Consideration of "Transaction Value" vs "Assessable Value" for reversal of credit:

The appellant argued that the reversal of credit should be based on the "assessable value" of exempted goods, not the "transaction value." The Tribunal did not specifically address this issue in detail, as the primary issues were resolved in favor of the appellant.

4. Limitation period for issuing show cause notices:

The appellant contended that the demand for certain periods was barred by limitation, as show cause notices were issued beyond the normal period of one year. The Tribunal did not address this issue in detail, as it decided the matter on merits and kept the limitation issue open.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal with consequential relief as per law, and pronounced the judgment in the open court on 20.03.2024.

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