2026 (2) TMI 178 - AT - Central Excise

Cenvat credit reversal on exempted goods: penalty and interest set aside after 5% amount paid and appropriated

Cenvat credit rules require reversal equal to 5% of the value of exempted goods where input service credits are used for exempted clearances; the tribunal ... Cenvat credit - reversal obligation under Rule 6(3) of the Cenvat Credit Rules, 2004 - 5% reversal on clearances of exempted goods - limitation on credit for services used for both dutiable and exempted goods - penalty u/s 11AC - Whether the appellant had reversed the amount of Rs.55,70,416/- being the 5% value of the exempted goods in terms of Rule 6(3) of the CCR, 2004 - HELD THAT:- We find that as per Para 9 of the Audit Note dated 27.11.2011, show-cause notice was issued to them wherein it was alleged that the appellant had availed cenvat credit on input services other than those listed under Rule 6(5) of the CCR, 2004 during the relevant period August 2009 to March 2011 and consequently, it was pointed out that an amount of Rs.55,70,146/- is required to be paid being 5% of the value of the exempted goods valued at Rs.11,14,02,929/-. The appellant in their reply before the learned Commissioner and as well as before us has categorically submitted that during the said period, they have not availed cenvat credit on common input services used in the manufacture of exempted goods not listed under Rule 6(5) of the CCR 2004. No contrary evidence has been brought on record by the Revenue to indicate the amount of 5% on value of exempted goods was not reversed by the appellant. On the contrary, the disputed amount of Rs.55,70,146/- paid by the appellant has been appropriated in the order. In these circumstances, we do not find merit in the impugned order imposing penalty equal to the amount paid and also confirming interest when the amount is reversed on the same date after availing the credit. In the result, the confirmation of demand of interest and imposition of penalty are set aside and appeal is disposed of accordingly. Issues: (i) Whether the appellant reversed Rs.55,70,146/- being 5% of the value of exempted goods in terms of Rule 6(3) of the Cenvat Credit Rules, 2004 and whether demand of interest and penalty could be sustained where such reversal was made on the same day after availment of credit.Analysis: The issue requires examination of Rule 6(3) and Rule 6(5) of the Cenvat Credit Rules, 2004 and the scope of penalty under Section 11AC of the Central Excise Act, 1944. Relevant facts established are that the amount of cenvat credit on common inputs and input services was availed following an audit objection and that on the same date the appellant reversed the 5% amount representing value of exempted clearances in two instalments which were reflected in the cenvat records. No contrary evidence was produced to show that the reversal did not occur contemporaneously. Where credit is reversed in accordance with Rule 6(3) contemporaneously with availment following detection, interest and penalty founded on sustained non-reversal are not maintainable. The appellate determination must therefore focus on whether the statutory reversal requirement was met and whether imposition of interest and penalty remains justified in view of the contemporaneous reversal recorded in the cenvat account.Conclusion: It is concluded that the appellant reversed Rs.55,70,146/- as required by Rule 6(3) of the Cenvat Credit Rules, 2004 on the same day the credit was availed following the audit objection. Consequently, confirmation of demand of interest and imposition of penalty under Section 11AC is not sustainable and is set aside. Appeal disposed accordingly in favour of the appellant on these aspects.