TaxTMI 
TaxTMI 
2022 (3) TMI 590
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....the Input Service Distributor [ISD] invoices issued by its head office in respect of the services received there. This credit was not bifurcated into those which had gone into the dutiable or exempted goods. It was felt by the Revenue that an amount equal to 10% of the value of the exempted goods is payable under Rule 6(3) (i) by the Appellant and a Show Cause Notice [SCN] demanding an amount of Rs. 11,95,39,489/- under Rule 6(3) (i) read with Rule 14 along with interest. The SCN further proposed to impose a penalty under Rule 15. 2. After following due process, learned Commissioner passed the impugned order the operative part of which is as follows: (i) I demand an amount of Rs. 11,95,39,489/- (Eleven Crores Ninety five lakhs thirty nine thousand four hundred and eighty nine only) from M/s Linkwell Telesystems (P) Ltd., Kushaiguda Electronic Complex Hyderabad 500062, being the amount payable on the value of the exempted products cleared during the period from April 2008 to July 2010 under proviso to Section 11A of Central Excise Act, 1944 read with Rule 6(3)(i) of Cenvat Credit Rules 2004. (ii) I appropriate the amount of Rs. 42,460/- (Rupees....
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....it taken on services when the Appellant was only manufacturing dutiable goods, a credit of Rs. 42,460/- is left which it had reversed along with interest. Therefore, nothing survives in this demand. (vi) No demand can be raised under Rule 14 to demand an amount under Rule 6(3) (i). Only credit irregularly availed can be demanded under Rule 14. (vii) No penalty can be imposed under Rule 15 of an amount equal to an amount determined under Rule 6(3) (i). 4. On behalf of the Revenue, the following submissions were made which were also the findings of the learned Commissioner. (i) The Appellant had manufactured both dutiable and exempted products. (ii) It was required to maintain separate accounts as required under Rule 6(2) or pay an amount under Rule 6(3) and the appellant opted to maintain separate accounts. It has simultaneously also availed CENVAT Credit on the common input services, which is not permissible. (iii) Hence, the provisions of Rule 6(3) (i) are attracted. (iv) Even if many of the common input services on which the Appellant had taken credit are covered by Rule 6(5), the f....
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....ices which go into manufacture of dutiable goods. No credit shall be allowed in respect of inputs which go into manufacture of exempted goods. 7. However, an assessee can manufacture both dutiable and exempted goods or render both taxable and exempted services. Similarly, there can always be inputs or input services which are used in or in relation to manufacture of both dutiable and exempted goods such as the input services in dispute in this case. Rule 6 of the Cenvat Credit Rules, 2004 which spells out "Obligations of manufacturer of dutiable and exempted goods and provider of taxable and exempted services" deals with this issue. Rule 6 (1) states that credit shall not be allowed on inputs or input services which are used in the manufacture of exempted goods or provision of exempted services. Rule 6(2) requires separate accounts to be maintained and it reads as follows:- "(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 p....
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....ds 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 II - For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service. (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 taxable services; (iv) description of exempted goods or exempted servi....
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....rovided plus the total value of exempted services provided, during the financial 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 or provision of exempted services = (M/N) multiplied by P, where L denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, M denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and N 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 provid....
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....der 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. Explanation I - "Value" for the purpose of sub-rules (3) and (3A) shall have the same meaning assigned to it under Section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under Section 4 or 4A of the Central Excise Act, 1944 read with rules made thereunder. Explanation II - The amount mentioned in sub-rules (3) and (3A), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. Explanation III - If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in Rule 14, for recovery of CENVAT credit wrongly taken.]" 10. Rule 6(3A) was fur....
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.... 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 following the principles of natural justice." 12. The first question to be answered in this case is if some credit has been taken and thereafter reversed as has been done by the Appellant in this case with respect to part of the credit, does it amount to not taking a credit at all or is the Appellant still liable for wrong availment of credit? Hon'ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. versus Collector of Central Excise, Nagpur [1996 (81) E.L.T. 3 (S.C.)] held that once credit is debited, it is as good as not taking credit at all. This decision is binding on all quasi-judicial authorities in the country. Para 7 of the judgment reads as follows:- "7. In view of the aforesaid clari....
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....n interpretation will lead to absurd and impractical conclusions. For instance: a) There are always some services such as telephone services, audit expenses, which can never be attributed wholly to either exempted or dutiable goods. b) There are also many situations where one input may go into manufacture of more than one product and at the time of purchase one cannot be sure what quantity of the input will go into which product. Bulk drugs and chemical companies, for instance, use solvents such as Acetone and Benzene and store them in bulk in tanks and use them as required. Some of their final products may be dutiable and some may be exempted. Just as it is impossible to say what portion of salt in a kitchen will go into making dal and what portion into curry, the ultimate use of these solvents cannot be predicted. c) There are also some inputs such as Furnace oil used in generating steam in processing industries, the use of which cannot be predicted before hand with certainty as to what portion of the steam will go into manufacture of what products and how much furnace oil will get consumed for the purpose. d) Even if th....
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.... provisions of Rules 6(1), 6(2) and 6(3). Therefore, insofar as the services covered by Rule 6(5) are concerned, credit will be available regardless of whether dutiable or exempted products are manufactured. 17. The last question is whether the department can demand and recover under Rule 14 an amount under Rule 6(3) (i) equal to 10% of the value of the exempted products. It is true that Rule 6 is titled 'Obligations of manufacturer of dutiable and exempted goods and provider of taxable and exempted services'. It is also true that Rule 6(3) reads "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 follow either of the following options, as applicable to him". The use of the words 'obligations' and 'shall' may mislead one to conclude that they can be enforced. However, one may find that there is no Rule which enables the Revenue to enforce any of the options under Rule 6 on the assessee. The reason for this is that these are not obligations as in charging section of the taxing statute but are in the nature of conditions for availing the CENVAT credit. If o....