TaxTMI 
TaxTMI 
2026 (3) TMI 1245
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....t of trading of notebooks. In both cases, the Show Cause Notices alleged short reversal of common CENVAT credit attributable to exempted goods/services under Rule 6(3A) of the CENVAT Credit Rules, 2004, read with Rule 14 and Section 11A of the Central Excise Act, 1944. Though the adjudicating authority did not confirm the demands as originally proposed and reworked the computation, demands were confirmed along with interest and penalties. 1.2 The appellant is engaged in the manufacture of printing and writing paper falling under Chapter 48 of the Central Excise Tariff. During the relevant period, certain clearances were exempt under applicable notifications; the appellant generated electricity in windmills and also undertook trading of notebooks, both treated as exempted activities for the purposes of Rule 6 of the CENVAT Credit Rules, 2004. The appellant availed CENVAT credit on inputs and input services used commonly and opted for proportionate reversal under Rule 6(3A). The department alleged that the appellant had incorrectly applied the formula by restricting it to common input services and by not properly including the value of electricity and traded goods, and contended t....
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....lude value of electricity and traded goods in computing the reversal to be made. It was argued that the formula under Rule 6(3A) refers to total credit and not merely common input service credit and that the adjudicating authority has correctly re-determined the differential amount. It was further submitted that the appellant did not maintain separate accounts and therefore liability under Rule 6(3)(i) or Rule 6(3A) arises automatically. 6. Upon hearing both sides and perusing the records, the following questions arise for determination: - i. Whether the appellant has correctly applied Rule 6(3A), including determination of common credit and inclusion of electricity and trading turnover in computing proportionate reversal? ii. Whether the impugned orders have travelled beyond the Show Cause Notices? iii. Whether the extended period is invocable? and, iv. Whether penalty is sustainable? Each of the above questions is examined in detail hereunder. Issue No. (i): Whether the appellant has correctly applied rule 6(3A), including determination of common credit and inclusion of electricity and trading turnover in computing proportionate revers....
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....icial view of various Benches of the Tribunal supports this interpretation. In CCE v. Reliance Industries Ltd., 2019 (369) ELT 3 (Tri.-Ahmd.), it was held that the expression "total CENVAT credit" in Rule 6(3A) must be read harmoniously with Rule 6(1) and therefore refers only to total common credit. In Lotte India Corporation Ltd. v. CCE, 2020 (373) ELT 395 (Tri.-Chennai), it was held that reversal under Rule 6(3A) is confined to common input service credit and that credit attributable exclusively to dutiable output cannot be artificially introduced into the computation. Similar views were expressed in Dalmiya Cement (Bharat) Ltd. v. CCE, 2023 (382) ELT 211 (Tri.-Del.) wherein Rule 6 was held to be a machinery provision intended only to neutralise ineligible common credit. 7.5 We further note that in Toshiba JSW Power Systems Pvt. Ltd. v. Commissioner of GST & Central Excise, Chennai, 2023 (6) TMI 543 (Tri.-Chennai), this Bench held that loading credit exclusively attributable to dutiable goods into the Rule 6(3A) formula would distort the statutory scheme and lead to unintended denial of legitimate credit. Likewise, in E-Connect Solutions Pvt. Ltd. v. CCE, 2019 (27) GSTL 401 (....
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.... exempted goods/services. The options under Rule 6(3) are mutually exclusive. The impugned order itself proceeds to rework the amount under Rule 6(3A), thereby accepting that Rule 6(3A) governs the field. 7.10 In view of the foregoing discussion, we hold that the appellant has correctly applied Rule 6(3A) by confining the computation to common credit and by including the value of electricity generated and trading turnover for the purpose of determining proportionate reversal. The interpretation adopted in the impugned orders, which loads exclusive dutiable credit into the formula and seeks to substitute the statutory option exercised by the appellant, is contrary to the scheme of Rule 6 and settled judicial precedent. Accordingly, the demand on this ground is unsustainable. Issue No. ii) Whether the impugned order travelled beyond the Show Cause Notices issued: - 8.1 It is a settled principle that adjudication cannot travel beyond the allegations in the Show Cause Notice. The SCN is the foundation of the case and defines the scope of adjudication. 8.2 In the present matter, the Show Cause Notices primarily alleged short reversal under Rule 6(3A) and sought recovery unde....
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....the SCN, is legally unsustainable. Issue No. iii) Whether extended period is invocable 9.1 We find that the entire demand in both appeals is based on scrutiny of ER-1 returns, balance sheets and audit objections. There is no allegation of clandestine removal, falsification of records or suppression of material facts beyond the allegation of short reversal of CENVAT credit. 9.2 We observe that the issue involved in the present case pertains to interpretation of the formula prescribed under Rule 6(3A) of the CENVAT Credit Rules, 2004. The appellant has regularly filed ER-1 returns and disclosed the turnover relating to electricity generated and trading activities. The computation sheets forming the basis of reversal were part of the statutory records and were available for verification. 9.3 The appellant submitted that the extended period under Section 11A of the Central Excise Act, 1944 can be invoked only where there is fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of duty. In support, reliance was placed on the landmark judgment of the Hon'ble Supreme Court in Cosmic Dye Chemical v. CCE, 1995 (75) ELT 721 (SC), wherein it wa....
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....e extended period under Section 11A is not invocable in the present case. Issue No. (iv) Whether penalty is sustainable: - 10.1 We find that penalties have been imposed under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 on the premise that the appellant had wrongly availed and short-reversed CENVAT credit with intent to evade payment of duty. 10.2 We observe that Rule 15(2) read with Section 11AC contemplates penalty only where credit has been wrongly taken or utilised by reason of fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of duty. The ingredients required for invoking extended period under Section 11A are substantially similar to those required for imposition of penalty under Section 11AC. 10.3 We have already held, while deciding Question (iii), that the issue involved in the present case is purely interpretational concerning application of Rule 6(3A) formula and treatment of electricity and trading turnover. The entire demand has arisen from scrutiny of statutory records and audit objections. There is no evidence of fraud, collusion, wilful misstatement or deliberat....