AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2023 (8) TMI 1140
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the parties, we confine the adjudication of the present appeal on the following substantial question of law:- "A. Whether in the facts and circumstances of the case the CSTAT was right in holding that the amendment to Rule 6 of the CENVAT Credit Rules, 2004 retrospectively amended by the Finance Act, 2010, was applicable in the present case in the light of the provisions of Section 73 of the Finance Act, 2010 ?" 3. The controversy in the present appeal revolves around the purport and applicability of Rule 6 of the Cenvat Credit Rules, 2004 (for short 'CCR, 2004') under which the duty demand was raised against the respondent. Rule 6 provides for obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. At the outset, it would be necessary to note Rule 6 of the CCR, 2004 as it stood prior to its amendment in the year 2008 and post the amendment in the year 2008 which reads thus:- "Rule 6 prior to 2008 amendment 6. Obligation of a manufacturer of dutiable and exempted goods and provider of taxable and exempted services. (1) The CENVAT credit shall not be allowed on such quantity of input or input se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Excise, dated the 16th March, 1995, G.S.R. 254(E), dated the 16th March, 1995; (3) No. 63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255(E), dated the 16th March, 1995; (4) No. 64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256(E), dated the 16th March, 1995; [(viii) Liquefied Petroleum Gases (LPG) falling under tariff items 2711 12 00, 2711 13 00 and 2711 19 00 of the said First Schedules] (ix) Kerosene falling within heading 2710 of the said First Schedule, for ultimate sale through public distribution system,] the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of such final products at the time of their clearance from the Factory; or (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; (c) the provider of o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....VAT credit attributable to exempted services for the whole financial year in the following manner, namely:- CENVAT credit attributable to exempted services =(X/Y) multiplied by: Z, where X denotes total value of exempted services provided during the Financial year, Y denotes total value of taxable and exempted services provided during the financial year, and Z denotes total CENVAT credit of inputs and input services taken during the financial year; (d) pay an amount equal to the difference between the amount determined: as per item (c) and the amount determined as per item (a), on or before the 30th June of the succeeding financial year, where the amount determined as per item (c) is more than the amount paid; (e) in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent per annum from the due date,i.e., 30th June till 'the date of payment, where the amount short-paid is not paid within the said due date; (f) where the amount determined as per item (c) is less than the amount determined and paid as per item (a), adjust the excess amount on his own, by taking credit of such amount; (iv) the provid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. (5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clauses (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. (6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either- (i) cleared to a unit in a special economic zone; or (ii) cleared to a hundred per cent export-oriented undertaking; or Rule 6 Post Amendment in the year 2008 6. Obligation of a manufacturer of dutiable and exempted goods and provider of taxable and exempted services. 6.(1) The CENVAT credit shall not be allowed on such quantity of input or input service which used in the manuf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....planation 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 services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition; (b) the manufacturer of goods or the provider of output service sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of exempted goods 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 provider of output service, shall, in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date; (f) where th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r or, as the case may be, the value determined under section 4 or 4A of the Central Excise Act, 1994 read with rules made thereunder. Explanation II. - The amount mentioned in sub-rules (3), (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.] (4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products 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 in a financial year. (5) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....service tax paid thereon; or (b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed. (emphasis supplied) 4. The relevant facts can be noted: The respondent is engaged interalia in the manufacture of Heat Exchangers, Pressure Vessels and Boilers, classifiable under Chapter 84 of the First Schedule to Central Excise Tariff Act, 1985. The respondent claimed benefit of exemption under items at Sr. Nos. 7, 8, 19 and 21 of the Notification No. 64/1995-CE, in respect of goods supplied to the Department of Space, Government of India and Indian Space Research Organization, and under Sr.No. 1 of Notification No. 10/1997-CE dated 9 March 1997 in respect of supplies made to Public Funded Research Institutions / Universities. The respondent maintains separate account in respect of the inputs used in the manufacture of exempted goods. The respondent contends that it does not take any credit of duty paid on such inputs. 5. The case of the department is to the effect that during the course of an audit of the respondent, it was revealed that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Thousand Two Hundred Twenty Three only) payable in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 prior to 1 April 2008 and Rule 6(3)(i) of the Cenvat Credit Rules, 2004 w.e.f. 1 April 2008 as mentioned above should not be demanded and recovered from them under proviso to Section 11A(1) of Central Excise Act, 1944; (ii) the amount of Rs. 1,22,98,068/(Rupees One Crore twenty two lakh ninety eight thousand sixty eight Only) paid by the assessee under Rule 6(3A)(c)(iii) of Cenvat Credit Rules, 2004 should not be appropriated against the above mentioned amount of Rs. 32,39,35,223/payable under Rule 6(3)(b) of Cenvat Credit Rules, 2004 prior to 1 April 2008 and Rule 6(3)(i) of Cenvat Credit Rules, 2004 w.e.f. 1 April 2008; (iii) appropriate interest in terms of Section 11AB of Central Excise Act, 1944 should not be demanded and recovered on the above mentioned amount of Rs. 32,39,35,223/-; (iv) the amount of Rs. 17,49,730/-(Rupees Seventeen lakhs forty nine thousand seven hundred thirty only) already paid by them should not be appropriated against the interest payable as under (iii); and (v) Penalty should not be imposed upon them under Secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or receipt, consumption and inventory or input service meant for use in the manufacture of dutiable final products or in providing output service. It was also held that the respondent had not followed or opted for procedure set out under sub-rule 3A of Rule 6 of the CCR, 2004. There was no denial by the respondent that the respondent was required to pay the amounts in terms of Rule 6(3)(b) / Rule 6(3)(i) of the CCR, 2004. It was held that the very act of proportionate reversal of Cenvat Credit established that the respondent had not maintained separate account, and had such account been maintained, the question of availment of Cenvat Credit on such inputs / input services and their subsequent reversal would not have arisen. Further, that the reversal of the credit was only for the period from 1 April 2008 to 31 December 2010 and not for the complete period under the impugned show cause notice i.e. the period prior to 1 April 2008. Also the respondent had not submitted any application to the Commissioner of Central Excise, opting to pay the amount in accordance with the provisions as amended by the Finance Act, 2010. The dispute was in respect of a period April, 2006 to December, 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....separate account of receipt, consumption and inventory of input services. It was contended that thus the only requirement was not to use the credit in the manufacture of exempted goods. The respondent also contended that the appellant had not taken the credit of disputed common input services to the extent used in the exempted goods. It is contended that it was a settled principle of law as laid down by the Supreme Court in CCE, Mumbai vs. Bombay Dyeing and Manufacturing Company Ltd. 2007 (215) E.L.T. 3 (S.C.) that reversal of credit before utilization would amount to not taking of the credit. It is hence contended that in any event the respondent was not liable to pay an amount equal to 10% of the value of the exempted goods in view of Section 73 of the Finance Act, 2010. There were several other grounds as raised by the respondent before the CESTAT. 15. The CESTAT by the impugned order has allowed the respondent's appeal by interpreting Rule 6 as it stood prior to its amendment in the year 2007-2008, and post amendment as amended in the year 2008. The CESTAT has observed that as per the provisions of Rule 6 of the CCR 2004 as amended from time to time in case of common input /....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respect to the service tax credit received and therefore was not required to maintain separate accounts of inputs or to follow procedure and conditions as contemplated under Rule 6 (3A) of the CCR, 2004, and that too after lapse of considerable time from the clearance of the exempted goods. It is next submitted that the CESTAT could not have come to a conclusion that an option was with the assessee under 6(3A) of the CCR, 2004 either to maintain separate accounts in respect of the common inputs and input services used for manufacture of exempted and dutiable goods and taxable and exempted service under Rule 6(2) or reverse the proportionate cenvat credit in respect of the inputs and input services as per Rule 6(3)(ii) or reverse the cenvat credit at the rate of 5% (earlier 10%) of value of exempted goods (Rule 6(3)(i)) more particularly as CESTAT did not take into consideration the finding of Commissioner that the provisions of Rule 6(3A) (c) (iii) of the CCR, 2004 were not applicable in the case of the assessee as they never followed the procedure and conditions laid down in Rule 6(3A) of the CCR, 2004. 17. On the other hand, learned Counsel for the assessee has supported the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d use of input services (i) in 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 for exempted services; and (iv) for the provision of output services excluding exempted services, and shall take Cenvat Credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b). Sub-rule (3) of Rule 6 provides that notwithstanding anything contained in sub-rule (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the conditions as applicable to him, as set out in sub-rule (3) namely :- (a) if the goods as set out in clause (a) are exempted goods, the manufacturer shall pay an amount equivalent to the Cenvat Credit attributable to inputs and input services used in or in relation to, the manufacture of such final products at the time of their clearance from the factory, or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in respect of input services used by it, hence, the available option for the respondent was to reverse the proportionate cenvat credit as applicable either under Rule 6(3)(i) or Rule 6(3)(ii). It is also clear that the benefit of reversing the proportionate credit was extended with retrospective effect in cases where common input and input services were used for dutiable and exempted products. This permitted the respondent to proportionately reverse the credit attributable to input / input services used for manufacture of exempted goods, in a case where common inputs or input services were used for manufacture of both dutiable and exempted goods. The respondent had paid / reversed the entire amount of proportionate credit for the period 2006-07 and 2007-08 alongwith interest at the rate of 24%. 26. Insofar as the period from 1 April 2008 to 31 December 2010 is concerned, even prior to issuance of a show cause notice, the respondent had reversed the entire amount of proportionate credit alongwith interest due in respect of the said period namely an amount of Rs. 1,22,98,068/- plus Rs. 17,49,730/-. Insofar as the revenue's contention in assailing the impugned order passed by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o maintain a separate account in view of the retrospective amendment, it was entitled to reverse proportionate Cenvat Credit. The option of paying an amount equal to 10% sale value of exempted goods, therefore, could not have been enforced on the assessee. That is how consistently even the Tribunals and the High Courts namely, the High Court of Karnataka at Bangalore, the High Court of Judicature at Madras and the High Court of Gujarat at Ahmedabad, have all understood and interpreted this provision. In such circumstances and even while these matters were brought to our notice, a Division Bench in the case of Central Excise Appeal No. 138 of 2005, decided on 17th October, 2016 [2017 (349) E. L. T. 33 (Bom.)] took up the same issue and held that these substantial questions of law would not survive. They would have to be answered against the Revenue and in favour of the assessee. That is how they stand answered even in this matter. The Revenue's appeal is accordingly dismissed." 29. In Nicholas Piramal Ltd. (supra) the Division Bench has observed thus:- 5. The Revenue had approached this Court in the further appeal, which came to be admitted. In the meanwhile, the Div....