TaxTMI 
TaxTMI 
2021 (11) TMI 426
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and is disputing the rest on the ground that Rule 6(5) of the Cenvat Credit Rules, 2004 [CCR] entitles it to such credit. The assessee is also aggrieved by the penalty imposed in the impugned order. Revenue is in appeal against part of the demand that has been dropped by the Commissioner and wants the entire demand as per the show cause notice to be confirmed. 2. The appellant/assessee manufactures Ferro-Manganese and Silico-Manganese classifiable under Chapter 72 of Central Excise Tariff and pays Central Excise Duty. It has a captive power plant and part of the electricity generated is used in the manufacture of the final products and part is wheeled out to A.P. Transco, Subhash Kabini Power Corp. Ltd., Reliance Energy Trading Limited, A.P. Power Purchase Co-ordination Committee, etc. To the extent, the electricity is captively used in manufacture of final products, there is no dispute. The dispute is regarding the CENVAT Credit availed on the inputs and input services used in production of electricity to the extent it is wheeled out. 3. The assessee reversed proportionate amount of CENVAT Credit attributable to the inputs/input services to the electricity which is wheeled....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s/input services on which credit is taken and the final products or services and credit taken can be used to pay excise duty or service tax. The principle in CCR as well its predecessor rules is that no credit can be taken on the inputs/input services used in manufacture of exempted goods or provision of non-taxable services. To avail CENVAT Credit, Rule 6 places some obligations on the assessee in the form of various alternatives. Rule 6(1) disallows CENVAT credit on inputs and input services used in manufacture of exempted products or provision of non-taxable services. Rule 6(2) requires the assessee who manufactures both dutiable and exempted products and/or provides both taxable and non-taxable services to maintain separate accounts of the receipt, consumption, etc. of the inputs and input services. Rule 6(3) requires an assessee who does not maintain separate accounts to pay an amount equal to 8%/ 10% of the value of the exempted goods. Later, with effect from 1.4.2008, Rule 6(3A) was introduced providing for reversal of proportionate amount of CENVAT credit as a further alternative. Rule 6(5) excludes certain types of services from Rules 6(1), 6(2) and 6(3) unless such servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. The application claimed to have been submitted by the appellant assessee was filed before the Deputy Commissioner of the division in Warangal and not before with the Commissioner (who is located in Hyderabad) and therefore, it does not meet the requirement. The Finance Act, 2010 also required the amounts to be paid along with interest. The interest in this case was paid much later and not along with the reversed amounts. For these reasons, the appellant is not entitled to the proportionate reversal. 9. We find that Rule 6(1) prohibits taking of credit on inputs and input services used in manufacture of exempted goods or provision of non-taxable services. In some cases, if only some portion of such inputs or input services goes into exempted goods or services, reversal of such proportion of the credit meets the requirement of Rule 6(1). An illustration which everyone can relate to makes this position clear. A man buys a packet of milk worth Rs. 70 and gives the shopkeeper a hundred rupee note. The currency note cannot be cut to give 70% of its value to the shopkeeper. Therefore, the shopkeeper returns him thirty rupees. It amounts to the man paying seventy rupees only although....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n addition to meeting the requirement under Rule 6(1) and 6(2). 12. For the period prior to 1.4.2008, following the Finance Act, 2010, the assessee has reversed the credit and interest. Revenue's objection is that the declaration was filed with the jurisdictional Deputy Commissioner instead of the Commissioner and that the interest was not paid along with the reversal but much later. On the first question of declaration, we find that if the assessee made a declaration with the Central Excise department itself, even if wrongly with the Deputy Commissioner instead of the office of the Commissioner, it may be technically incorrect but such hyper-technicality should not deprive the assessee of substantial benefit. Similarly, Revenue's argument that interest was paid much later does not hold much water as long as it has been paid. 13. We, therefore, find that reversal of proportionate amount of CENVAT credit by the assessee in this case is not only sustainable under Rule 6(3A) for the period post 1.4.2008 and under Finance Act, 2010 (for the period pre 1.4.2008) but such reversal itself meets the obligations of the assessee under Rule 6(1) (of not taking credit of inputs and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 65 (105) (zzg) 1,10,380/- Consultancy 65 (105) (za) 1,06,114/- Inspection 65 (105) (zzi) 16,357/- Professional services 65 (105) (g) 48,960/- TOTAL 11,70,022/- 16. It has been submitted by the appellant/assessee that in violation of the explicit provision, the Commissioner has not allowed credit even for the input services covered by Rule 6(5). 17. It has been submitted on behalf of the Revenue that the Adjudicating Authority has correctly held that the provisions of Rule 6(5) were not applicable since the assessee had contended that electricity being non-excisable, Rule 6 itself not applicable. If Rule 6 itself is not applicable, Rule 6 (5) is not applicable also and therefore they cannot get its benefit. It has further been submitted that as per the definition under CCR, 'input' means, inter-alia, "all goods used for generation of electricity or steam for captive use" [Rule 2 (k) (iii)]. Similarly final products as per Rule 2 (h) means "excisable goods manufactured from input or using input services". Anything not used in manufacture of final products does not qualify as input and the final product has to be one which is an e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the value of the exempted goods/ services. The authorities cannot choose an option for the assessee and enforce it. If the assessee does not follow any of the options and still takes credit, such irregularly availed CENVAT credit can be recovered under Rule 14 of CCR. Therefore, the show cause notice demanding an amount under Rule 6(3) is without authority of law and needs to be set aside. Learned counsel for the department, however, supports the show cause notice. 20. We find that Rule 6 of the CCR lays down 'Obligations of the assessee'. These obligations are not in the form of a charging section demanding a duty but are obligations to avail CENVAT credit. Just as no assessee can be compelled to maintain separate records under Rule 6(2), no assessee can be compelled to pay an amount under Rule 6(3). The obligations under Rule 6 are in the form of various alternatives and the assessee is free to choose any option. There is no mechanism either in the CCR or in the Act to enforce any of the options or one of the options on the assessee. If the assessee does not choose any of the options and still avails CENVAT credit, such irregularly availed CENVAT credit can, of course, be r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... had been taken or utilised wrongly along with interest. However, the second respondent did not choose to exercise power under this Rule but relied upon Rule 6(3)(i) and made the choice of the option thereunder for the petitioner, viz., to pay 5%/6% of the value of the exempted services. The statutory scheme did not vest the second respondent with the power of making such a choice on behalf of the petitioner. The Order-in-Original, to the extent that it proceeded on these lines, therefore cannot be countenanced". 21. As per the aforesaid judgment, the show cause notice is without authority of law and, therefore, any order in pursuance of it is bad in law and needs to be set aside. Penalty upon the appellant 22. Penalty has been imposed upon the appellant under Rule 15 by the impugned order, which the assessee controverts and the Revenue supports. This Rule reads as follows: "RULE 15. Confiscation and penalty. - (1) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of any of the provisions of these rules, then, all such goods shall be liable to confiscation and such person, shall be li....