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of <h1>CENVAT reversal for common input services u/r 6(3A): exclude credits tied only to dutiable output; demand set aside.</h1> The dominant issue was the correct base for computing reversal under Rule 6(3A) of the CENVAT Credit Rules where common input services were used for both ... Method of computation of CENVAT Credit - Allocation of credit of common input services to departments rendering taxable services and those rendering exempted services - cenvat credit of input services exclusively used for dutiable product should be taken or total cenvat credit of only common input service should be taken for the purpose of calculating the cenvat credit for reversal in terms of Rule 6(3A)? - HELD THAT:- It is found that in the case of CCE & ST Rajkot Vs Reliance Industries Ltd. [2019 (3) TMI 784 - CESTAT AHMEDABAD] the Ahmedabad Bench of the Tribunal had an occasion to consider a more or less similar situation where it was held that 'it can be seen that when anomaly was noticed, the Government has substituted the sub-rule (3A). The legislators very consciously substituted the Rule with intention to give a clarificatory nature to the provision of sub-rule (3A) so as to make it applicable retrospectively. It was all along not the intention of the Government to deny Cenvat credit on the input/input service even though used in the dutiable goods. Keeping the said view in mind, the substitution in sub-rule (3A) of Rule 6 was made. Therefore, the substituted provision of sub-rule (3A) shall have retrospective effect being clarificatory.' From the above order it is clear that for the purpose of calculation of credit reversal, in the formula, total Cenvat credit shall mean credit of only common input services and not of input services exclusively used for the manufacture of dutiable product on which the Cenvat credit is eligible in its entirety. The demand raised against the Appellant cannot sustain - the impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, for computing reversal of CENVAT credit under Rule 6(3A) of the Cenvat Credit Rules, 2004, 'total CENVAT credit' includes credit of input services exclusively used for taxable output services, or is confined to the credit on common input services shared between taxable and exempted output services. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Scope of 'total CENVAT credit' for Rule 6(3A) reversal computation Legal framework (as discussed by the Court): The Court examined Rule 6(3)(ii) of the Cenvat Credit Rules, 2004, which requires payment of an amount equivalent to the CENVAT credit attributable to inputs and input services used in or in relation to exempted goods/exempted services, subject to the conditions and procedures in Rule 6(3A). The dispute turned on how 'total CENVAT credit' in the Rule 6(3A) formula is to be understood while quantifying the reversal. Interpretation and reasoning: The Court noted that the underlying object of Rule 6 is to restrict credit only to the extent it pertains to exempted services and not to deny credit that is legitimately attributable to taxable output services. It accepted the contention that an interpretation which treats 'total CENVAT credit' as including credit exclusively attributable to taxable services would result in reversal even of eligible credit, which would be inconsistent with Rule 6(3)(ii), whose focus is attribution to exempted services. The Court adopted the view that Rule 6 must be read harmoniously so that the reversal mechanism expunges only the common credit attributable, by formula, to exempted turnover, without touching credit exclusively used for taxable output services. Conclusions: For the purpose of the Rule 6(3A) computation, 'total CENVAT credit' means only the credit of common input services (shared between taxable and exempted services) and does not include credit on input services exclusively used for taxable output services. On this basis, the quantified demand based on inclusion of the entire input service credit was held unsustainable, the impugned demand was set aside, and the appeal was allowed with consequential benefits as per law.
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