TaxTMI 
TaxTMI 
2021 (6) TMI 60
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...., 2004 [Cenvat Rules]. 3. Revenue felt that the appellant availed inadmissible credit on input services used for exempted services, viz., trading of goods and issued Show Cause Notice dated 27 March, 2018 demanding payment of an amount of Rs. 13,84,44,474/- for the period 2015-2016 under Rule 6(3)(i) of Cenvat Rules. This demand was partly confirmed to the tune of Rs. 6,21,72,263/- by the Order-in-Original dated February 22, 2019, which is impugned in Appeal No. E/51303/2019. 4. Another Show Cause Notice dated March 18, 2019 was issued covering the period from April 2016 to June 2017 demanding an amount of Rs. 21,35,06,000/- under Rule 6(3)(i) of Cenvat Rules. This demand was partly confirmed to the tune of Rs. 7,57,07,862/- by Order-in-Original dated November 20, 2019. This order is impugned in Appeal No. E/50236/2020-DB. 5. Learned counsel for the appellant submits that this dispute first arose during audit of the appellant's records for the period 2011-12 to 2012-13 conducted during February 2013 and July 2013. The appellant manufactures the goods and also trades in them and the latter activity is undisputedly, an exempted service. They have not availed CENVAT credit on....
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....ely for provision of exempted service were concerned, they have maintained separate records as required under Rule 6(2) and not have not taken credit on such input services. In respect of the common input services, of the three options, the appellant opted the third, i.e., Rule 6(3)(ii) and paid an amount determined as per Rule 6(3A) even before the show cause notices were issued. However, the department issued show cause notices demanding an amount under Rule 6(3)(i) which is ex facie erroneous. It is for the assessee to chose any option he pleases and it is not open to the department to thrust any option upon them. 11. If the assessee does not choose any of the options under rule 6(3), the availment of CENVAT credit will be irregular and, therefore, the department can issue a notice to disallow and recover the irregularly availed CENVAT credit. Even in such a case, the department cannot demand that assessee should follow a particular option under Rule 6(3) as has been held by the High Court of Telangana and Andhra Pradesh Tiara Advertising vs Union of India [2019 (10) TMI 27- Telangana and Andhra Pradesh High Court]. 12. Once the proportionate amount of CENVAT credit is rev....
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.... 16.1. Learned counsel relies on CCE &ST, Rajkot vs Reliance Industries Ltd. [2019 (3) TMI 784 -CESTAT Ahmedabad] in which, in a case dealing with the unamended Rule, it was held that total CENVAT credit availed does not include the input services used exclusively for manufacture of dutiable goods. 16.2 Learned counsel submits that another anomaly in the impugned order for the period April 2016 to June 2017 (appeal no. E /50236/2020) is that it pertains to the period after amendment and the demand was confirmed in the impugned order relying on the unamended rules. 17. Learned Counsel also submitted that as far as the value of the exempted service (i.e., trading) reckoned in the impugned orders for calculating the amount to be reversed is concerned, the adjudicating authority has erroneously considered the total value of the goods traded as the value of the exempted service instead of the service element in it which should be only 10% of the goods traded or the difference between sale price and cost price as per Explanation 1(c) to Rule 6(3A). 18. Learned authorized representative of the department strongly supports the impugned orders. 19. We have considered the argu....
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....t with the principles of valuation contained in the Excise Act and the rules made thereunder. (2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for - (a) the receipt, consumption and inventory of inputs used - (i) in or in relation to the manufacture of exempted goods; (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services; (iv) for the provision of output services excluding exempted services; and (b) the receipt and use of input services - (i) or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exemp....
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....provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. Explanation III. - No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. (3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :- (a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) description of dutiable goods or 9[output] services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in ....
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....cial year and L denotes total CENVAT credit taken on inputs during the financial year minus H; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance upto the place of removal or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year; (d) the manufacturer of goods or the provider of output service, shall pay an amount equal to - the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid; (e) the manufacturer of goods or the provider of output service, shall, in addition to the a....
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....termined under condition (h) is not paid within the said due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four per cent. per annum from the due date till the date of payment. (3B) Notwithstanding anything contained in sub-rules (1), (2) and (3), a banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances shall pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on inputs and input services in that month. (3C) (3D) Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken. Explanation I. - "Value" for the purpose of sub-rules (3) and (3A), - (a) shall have the same meaning as assigned to it under section 67 of the Finance Act, read with rules made thereunder or, as the case may be, the valu....
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....ons of this rule shall mutatis mutandis apply in case of a large tax payer.]" 23. During the period from April 2016 to June 2017, the Rule 6 is as follows: RULE 6. Obligation of a manufacturer or producer of final products and a 'provider of output service (1) The CENVAT credit shall not be allowed on such quantity of input as is used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service as is used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services and the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service, in terms of the provisions of sub-rule (2) or sub-rule (3), as the case may be : Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clause....
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.... Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be seven per cent. of the value so exempted : Provided also that in case of transportation of goods or passengers by rail, the amount required to be paid under clause (i) shall be an amount equal to two per cent. of value of the exempted services. Explanation 1. - If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation 2. - No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. Explanation 3. - For the purposes of this sub-rule and sub-rule (3A),- (a) "non-exempted goods removed" means the final products excluding exempted goods manufa....
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....it, denoted as B, and shall not be required to be paid; (iii) credit left after attribution of credit under sub-clauses (i) and (ii) shall be called common credit, denoted as C and calculated as,- C = T - (A + B); Explanation. - Where the entire credit has been attributed under sub-clauses (i) and (ii), namely ineligible credit or eligible credit, there shall be left no common credit for further attribution. (iv) the amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid, - D = (E/F) x C; where E is the sum total of - (a) value of exempted services provided; and (b) value of exempted goods removed, during the preceding financial year; where F is the sum total of - (a) value of non-exempted services provided, (b) value of exempted services provided, (c) value of non-exempted goods removed, and (d) value of exempted goods removed, during the preceding financial year : Provided that where no final products were manufacture....
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....ual) and shall be calculated as, - D(Annual) = (H/I) x C(Annual); where H is sum total of- (a) value of exempted services provided; and (b) value of exempted goods removed; during the financial year; where I is sum total of - (a) value of non-exempted services provided, (b) value of exempted services provided, (c) value of non-exempted goods removed; and (d) value of exempted goods removed; during the financial year; (d) the manufacturer or the provider of output service shall pay on or before the 30th June of the succeeding financial year, an amount equal to difference between the total of the amount of Annual ineligible credit and Annual ineligible common credit and the aggregate amount of ineligible credit and ineligible common credit for the period of whole year, namely, (A(Annual) + D(Annual)) - (A+D) aggregated for the whole year), where the former of the two amounts is greater than the later; (e) where the amount under clause (d) is not paid by the 30th June of the succeeding financial year, the manufacturer of goods or the provider of output service, shall, in additio....
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.... of fifteen per cent. per annum from the due date for payment of amount for each of the month, till the date of payment thereof. (3AB) Assessee who has opted to pay an amount under clause (ii) or clause (iii) of sub-rule (3) in the financial year 2015-16, shall pay the amount along with interest or take credit for the said financial year in terms of clauses (c), (d), (e), (f), (g), (h) or (i) of sub-rule (3A), as they prevail on the day of publication of this notification and for this purpose these provisions shall be deemed to be in existence till the 30th June, 2016.] (3B) A banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances, in addition to options given in sub-rules (1), (2) and (3), shall have the option to pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on inputs and input services in that month.] 3(3C) * * (3D) Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that....
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....or proprietary firm or partnership firm, the expressions, "following month" and "month of March" occurring in sub-rules (3) and (3A) shall be read respectively as "following quarter" and "quarter ending with the month of March". (4) No CENVAT credit shall he allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted services for a period of two years from the date of commencement of the commercial production or provision of services, as the case may be, other than the final products or output services which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made or services provided in a financial year: Provided that where capital goods are received after the date of commencement of commercial production or provision of services, as the case may be, the period of two years shall be computed from the date of installation of such capital goods.] [5 ) * (6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable good removed without payment of duty are eith....
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.... of S. No. 40A of the Table in Notification No. 12/2012-Central Excise, dated the 17th March, 2012, number G.S.R. 163(E), dated that 17th March, 2012. (6A) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a developer of a Special Economic Zone for their authorised operations.] [(7) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a developer of a Special Economic Zone for their authorised operations or when a service is exported lor when a service is provided or agreed to be provided by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India] (8) For the purpose of this rule, a service provided or agreed to be provided shall not be an exempted service when :- (a) the service satisfies the conditions specified under rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in conver....
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....ces rendered. 25. The next question to be considered is whether only the CENVAT credit taken on common input service should be considered or the entire CENVAT credit taken should be considered for calculating the proportionate amount of CENVAT to be reversed as per Rule 6(3A). For the period April 2016 to June 2017, Rule 6 (3A)(b) lays down the procedure as follows: "(b) the manufacturer of final products or the provider of output service shall determine the credit required to be paid, out of this total credit of inputs and input services taken during the month, denoted as T, in the following sequential steps and provisionally pay every month, the amounts determined under sub-clauses (i) and (iv), namely :- (i) the amount of CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services shall be called ineligible credit, denoted as A, and shall be paid; (ii) the amount of CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of non-exempted goods removed or for the provision of non- exemp....
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....e rendered viz., trading. This should therefore, be apportioned. The adjudicating authority, therefore, erred in taking the total credit taken (including credit taken on inputs and input services used exclusively for manufacture of dutiable goods) to calculate the amount of CENVAT credit that must be reversed under Rule 6(3A). For the period April 2016 to June 2017, this was clearly, against the explicit rule position as laid down in Rule 6(3A)(b) discussed above. 28. Insofar as the period 2015- 2016 is concerned, during the relevant period, Rule 6(3A) (c) (iii) read as follows: (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance upto the place of removal or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial y....
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.... in respect of such services is to divide the credit on such input services in proportion to the value of the dutiable goods and exempted services and deny credit to the extent it is attributable to the exempted services using the formula under Rule 6(3A). Therefore, the total credit taken in the formula under Rule 6(3A) can only refer to such credit as is not covered by Rule 6(2), i.e., credit on common input services. Only such an interpretation is harmonious with the restriction on credit laid down under Rule 6(1) and the provision for maintenance of separate records under Rule 6(2). We do not find anything in the CENVAT Rules which prohibits an assessee from following Rule 6(2) in respect of the inputs and input services where it is feasible to maintain separate records and follow Rule 6(3A) in case of such inputs or input services where it is not feasible to do so. It would have been a different situation if the appellant had not followed Rule 6(2) at all and took credit on all the inputs and input services regardless of whether they are attributable to the manufacture of dutiable goods or provision of exempted services. Then the total CENVAT credit taken during a year would h....