2026 (1) TMI 18 - AT - Central Excise

Proportionate CENVAT credit reversal on input naphtha for exempted goods u/r 6(3A), amendment benefit upheld; appeal dismissed

The dominant issue was whether proportionate reversal of CENVAT credit on input naphtha used in manufacture of exempted goods satisfied Rule 6(3A) of the ... Utilisation of input naphtha on which CENVAT credit was taken, in the manufacture of dutiable and/or exempted goods during the disputed period - amount that is required to be reversed proportionately by the respondent in terms of Rule 6 (3A) of CCR of 2004 have been fulfilled or not - eligibility for benefit of amendments brought in through the Finance Act, 2010 during the entire disputed period - HELD THAT:- From the order of the Tribunal in DEEPAK FERTILIZERS & PETROCHEMICAL CORP LTD. [2014 (8) TMI 495 - CESTAT MUMBAI], it clearly transpires that reversal of CENVAT credit by the respondents in terms of CENVAT statute had been accepted by the Tribunal and specific directions was given to the original authority, to consider the C.A. certificate to be produced by the respondents, and if such payments were found to be as per law, then directing the adjudicating authority to grant the benefit provided under the Finance Act, 2010 with respect to reversal of credit on inputs used in the manufacture of exempted product. It is found that the dispute in a similar case of Commissioner of Central Excise, Patna Vs. New Swadeshi Sugar Mills [2015 (9) TMI 881 - SUPREME COURT], the Hon’ble Supreme Court had by upholding the decision of the Tribunal have held that the CENVAT credit taken cannot be denied to the assessee on the ground of Rule 6 of 2002 Rules as it only prohibited availability of credit to manufacture of exempted goods specified therein. Accordingly, the Civil Appeal No.2043 of 2006 filed by the department was dismissed. In the present case, even though the respondents have claimed that they had not used naphtha for generating steam and it is only the exothermic steam generated in the chemical reaction that is used in or in relation manufacture of ammonia-fertiliser, being exempt from payment of excise duty, the respondents had paid the requisite proportionate amount of CENVAT credit involved in the manufacture of exempted goods. The impugned order dated 08.10.2015 does not require any interference - the impugned order passed by the learned adjudicating authority is upheld and the appeal filed by the Revenue is dismissed. 1. ISSUES PRESENTED AND CONSIDERED (a) Whether the respondent was entitled, for the disputed period, to settle its obligation under Rule 6 by proportionate reversal of CENVAT credit attributable to inputs used in exempted goods with applicable interest, instead of payment of a fixed percentage of the value of exempted goods, and whether the adjudicating authority correctly granted such benefit while finalising the demands. (b) Whether the respondent had complied with the Tribunal's remand directions by producing the required accountant's certification and by discharging the quantified reversal and interest, so that the adjudicating authority's acceptance of such compliance required no interference. 2. ISSUE-WISE DETAILED ANALYSIS (A) Entitlement to proportionate reversal (rather than percentage payment) and correctness of extending such benefit for the disputed period Legal framework (as discussed by the Court): The Court examined Rule 6 of the CENVAT Credit Rules, 2004, particularly the options under Rule 6(3) and the procedure under Rule 6(3A) for paying an amount equivalent to credit attributable to inputs used in exempted goods. The Court also examined the Finance Act, 2010 provisions described in the judgment, which were discussed as retrospectively enabling resolution of disputes by payment/reversal of attributable credit with interest, subject to verification and supporting certification. Interpretation and reasoning: The Court read the scheme as providing an option to discharge obligation through attributable credit reversal (with interest) and noted that this approach had already been accepted in the remand directions earlier issued by the Tribunal, which directed verification of the quantum reversed and interest liability, and grant of the Finance Act, 2010 benefit upon compliance. The Court treated the impugned adjudication as an implementation of those directions, rather than an independent re-opening of liability under the percentage method. It also noted that, although the respondent asserted that the disputed input was not used for exempted goods, the respondent nevertheless reversed a quantified attributable amount 'out of abundant caution,' and the adjudication focused on whether the statutory discharge (reversal plus interest) had been correctly made and verified. Conclusions: The Court upheld the adjudicating authority's acceptance of proportionate reversal with interest as legally sufficient discharge for the disputed period, and rejected the Revenue's challenge that sought confirmation of demand on the basis of percentage payment of exempted turnover. The Court concluded that no interference was warranted with the impugned order granting the benefit on the basis of reversal and interest payment as verified. (B) Compliance with remand directions: verification through accountant's certificate; acceptance of quantified reversal and interest Legal framework (as discussed by the Court): The Court relied on the remand directions (described in the judgment) requiring the respondent to produce certification by an accountant regarding the amount of credit attributable to exempted goods and to discharge interest at the rate specified in the remand directions, followed by verification and grant of benefit if found in order. Interpretation and reasoning: The Court found that the adjudicating authority examined the certification produced, scrutinised the annexed computation, and recorded findings accepting (i) the quantified attributable credit reversal for the relevant period and (ii) the quantified interest payment computed at the required rate and appropriated it. The Court treated these findings as fulfilment of the remand conditions and as a proper implementation of the Tribunal's earlier order. Since the impugned order was consistent with the remand mandate and recorded verification-based acceptance, the Court held that the Revenue's objections did not justify overturning the order. Conclusions: The Court held that the impugned order correctly carried out the Tribunal's remand directions by accepting the certified reversal and interest payment, and therefore required no interference. The Revenue's appeal was dismissed and the impugned order was upheld.