TaxTMI 
TaxTMI 
2022 (2) TMI 729
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dutiable and some are exempt. The exempted products include LPG (Domestic), SKO (Domestic), etc. In respect of some of these products the goods become dutiable or exempt depending on whether they were cleared through the Public Distribution System (PDS) or otherwise. Therefore, at the time of manufacture it is not known whether the goods will be exempt or dutiable. The respondent avails Cenvat credit and had taken Cenvat credit on common inputs and input services which go into manufacture of dutiable as well as exempted products. However, they have availed Cenvat credit on these common inputs/input services only to the extent of 85%. The proportionate value of the exempted goods manufactured by the respondent as per the books of accounts was about 10% and never touched 15%. 2. The case of the Revenue is that the respondent had not maintained separate records in respect of records of receipt, consumption and disposal of common inputs/input services for dutiable/exempted product as required under Rule 6(2) of the Cenvat Credit Rules, 2004 [CCR 2004] and, therefore, it is required to pay an amount equal to 10% of the value of the exempted products as per Rule 6 (3) of CCR. Show ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ountant ; (iv) Therefore, there was sufficient compliance on the part of the respondent as soon as the maintenance of separate accounts under Rule 6(2) of the Cenvat Credit Rules is concerned ; 4. Relying upon the judgment of the Hon'ble Supreme Court in the case of Chanderpur Magnet Wires (P) Ltd. [1996 (81) E.L.T. 3 (S.C.)], he held that reversal of credit is to be construed as non-availment of the credit. He also relied upon the judgment of Hon'ble High Court of Gujarat in the case of CCE versus Ashima Dyecot Ltd. [2008 (12) S.T.R. 701 (Guj.)] 5. The grounds of appeal of the Revenue in this case are that the matter was remanded by the Tribunal to the Commissioner to decide the issue of reversal keeping in view the amendments to Rule 6 of CCR to which retrospective effect has been given by the Finance Act, 2010. The relaxation in this provision of the Finance Act, 2010 was subject to some conditions, which were not fulfilled by the respondent and, therefore, they were not entitled to the benefit of Finance Act, 2010. It has also been asserted that since the Tribunal has remanded the matter only to consider the provisions of Finance Act, 2010, the learned Commission....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the respondent as per Rule 6(2) as it amounts to maintaining separate accounts. 11. Revenue's appeal is on the ground that the noticee (the Respondent herein) had taken the credit of input services such as port services for crude oil handling but in the adjudication order only reversal of credit on inputs by the noticee has been mentioned, but there is no indication of reversal of proportionate credit on the input services. Since the respondent did not maintain separate accounts they are liable to pay an amount equal to 10% of value of the exempted goods and since they have not been done so, the learned Commissioner should have confirmed the demand. 12. We have considered the arguments made on both sides and perused the records. The questions which need to be answered in these appeals are: a) Are the SCNs demanding an amount of 10% of the value of exempted goods under Rule 6(3) of the CCR, which culminated in the impugned orders legally sustainable? b) Was the Commissioner correct in examining the three cases where the orders were in the remand proceedings in terms of Rule 6(2) of the CCR or has the Commissioner gone beyond the scope of the remand? ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly been named as 'a duty of excise to be called the Central Value Added Tax (CENVAT)' in the charging section 3 itself. However, even before this amendment, excise duty was being treated as a value added tax which refers to a tax being levied on the value addition by the assessee. It is impractical to assess the value addition in respect of each transaction. Therefore, the Central Excise Act and Rules provided for a practical mechanism of allowing the manufacturer to take credit of the duty paid on the inputs and input services by its suppliers of goods or services and use it to pay excise duty on the final products manufactured by it. Unless there are some distortions due to vastly different rates of duty or tax on the inputs or input services and rates of duty on the final product, the manufacturer ends up paying duty in cash only to the extent of value addition by it and the rest of duty paid by it gets paid from the Cenvat credit. However, there is no one-to-one correlation between the credit taken on inputs/input services and the final products into which such inputs or input services have gone into. For instance, if one receives inputs on the first day of a month, one can ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable". 18. Rule 6 (3) states that the manufacturer or provider of output service opting not to maintain separate accounts shall follow any of the following conditions applicable to him. It has three clauses: (a), (b) & (c) of which the one in dispute is (b) which reads as follows :- "(b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to ten per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory ; 19. This Rule 6(3) was amended w.e.f. 01.03.2008 and a new Rule 6 (3A) was also introduced. After amendment, there were Rule 6 (3) & Rule 6 (3A) which read as follows :- (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d as A; (ii) The amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional) = (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A; (iii) The amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input services during the month; (c) The manufacturer of goods or the provider of output servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess amount on his own, by taking credit of such amount; (g) The manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) respectively, the following particulars, namely :- (1) details of CENVAT credit attributable to exempted goods and exempted services, monthwise, for the whole financial year, determined provisionally as per condition (b) ; (2) CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c), (3) Amount short paid determined as per condition (d), alongwith the date of payment of the amount short-paid, (4) Interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and (5) Credit taken on account of excess payment, if any, determined as per condition (f) ; (h) Where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition (b), due to reasons th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of India in the Ministry of Finance (Department of Revenue) number G.S.R. 600(E), dated the 10th September, 2004, rule 6 shall stand amended and shall be deemed to have been amended retrospectively, in the manner specified in column (3) of the Eighth Schedule, on and from and up to the corresponding date specified in column (4) of that Schedule against the rule specified in column (2) of that Schedule. (2) Where a person opts to pay the amount in accordance with the provisions as amended by sub-section (1), he shall pay the amount along with interest specified thereunder and make an application to the Commissioner of Central Excise along with documentary evidence and a certificate from a Chartered Accountant or a Cost Accountant, certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of exempted goods, within a period of six months from the date on which the Finance Bill, 2010 receives the assent of the President. (3) The Commissioner of Central Excise shall, on receipt of an application under sub-section (2), verify the correctness of the amount paid within a period of two months from the date of receipt of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dit. This Rule also provides various alternatives through which the obligations can be met. Rule 6(1) mandates that the assessee shall not take credit on the inputs/input services used in manufacture of exempted products. Rule 6(2) deals with cases where the manufacturer manufactures both dutiable and exempted products and requires the assessee to maintain separate accounts. Rule 6(3) provides another alternative to reverse an amount equal to 10% of the value of the exempted goods if the assessee chooses not to maintain separate accounts. 23. The question which arises is if the manufacturer takes CENVAT credit and does not follow any of the obligations under Rule 6 can it be compelled to follow any of the options? A plain reading of the Rule does not show so. An illustration will make the position clear. Colleges select students and grant them admission to various courses. The selection will be subject to conditions such as, produce all the original certificates for verification, pay the fee by a certain date, etc. If the fee is not paid by that date, the college may give the student the option to pay the fee by a further date with late fee. In such a case, the student has an op....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... goods or services, as the case may be, or two thousand rupees, whichever is greater. (2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilised wrongly by reason of fraud, collusion or any willful mis- statement or suppression of facts, or contravention of any of the provisions of the Excise Act, or of the rules made thereunder with intent to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act. (3) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilised wrongly by reason of fraud, collusion or any willful mis- statement or suppression of facts, or contravention of any of the provisions of these rules or of the Finance Act or of the rules made thereunder with intent to evade payment of service tax, then, the provider of output service shall also be liable to pay penalty in terms of the provisions of Section 78 of the Finance Act. (4) Any order under sub-rule (1), sub-rule (2) or sub-rule (3) shall be issued by the Central Excise Officer followin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat it proceeded on these lines, therefore cannot be countenanced. 16. As regards the issue of debit notes, Sri A. Radha Krishna, Learned Senior Standing Counsel, is not in a position to dispute the case law relied upon by the petitioner in its reply dated 16-5-2016. It is not his case that any of these decisions was overturned or that there is a binding decision of a higher judicial authority to the contrary. He also has no explanation to offer as to why the second respondent did not even deal with the case law cited before him. We therefore hold that disallowance of Cenvat Credit on the ground that the petitioner had availed the same by producing debit notes instead of invoices cannot be accepted". All the SCNs which culminated in the impugned orders are not sustainable in these appeals on this ground itself.The answer to the question (a) in paragraph 12 above is NO. However, we also proceed to examine the remaining questions which we set out in paragraph 12. 26. The first ground of appeal of Revenue in respect of the remand matters by the Revenue is that this Tribunal has remanded the matter to consider the matter in the light of amendment made in Finance Act, 201....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y be taken on all the inputs and then the proportionate credit attributable to the manufacture of exempted goods reversed. 28. Each of these is a sufficient compliance of Rule 6(2). There could be any other form of complying with the requirements under Rule 6(2) also. In the case of Chanderpur Magnet Wires (P) Ltd. (supra) Supreme Court has held that if credit is taken and thereafter reversed it is as good as not taking credit at all. Therefore, even if the Finance Act, 2010 is not considered, the assessee can maintain separate accounts as per Rule 6(2) by any of the methods including those mentioned above. The related question which arises is that of calculation. We find that the respondent has produced certificate from the Chartered Accountant who has audited their accounts showing that the percentage of exempted goods cleared by them never touched; late alone exceeded 15% and they have taken credit on common inputs and input services only to the extent of 85%.We find that as per the evidence produced by the respondent they have more than fully met the requirements of Rule 6(2). On the other hand, we do not find any evidence produced by the Revenue to show that the proportiona....