Reversal of Cenvat credit amount to non-availment of Cenvat credit -Assessee allowed to avail Abatement benefits

Abatement and Cenvat credit availed simultaneously but subsequently Cenvat credit reversed, tantamount to non-availment of Cenvat credit – Assessee allowed to avail the Abatement benefits

In the instant case, Central Warehousing Corporation (the Appellant) was rendering both taxable as well as exempted services. The Appellant was availing Cenvat credit of the common input services and not maintaining separate records in respect of such input services consumed for the dutiable output services and the exempted output services separately. However, the Appellant was following the procedure prescribed under Rule 6(3A) of the Cenvat Credit Rules, 2004 (the Credit Rules) which provides for reversal of Cenvat credit taken attributable to the exempted output services as per the formula prescribed there under. This reversal was done every month and subsequently at the end of the year, the reversal made was finalized based on the annual figures.

The Appellant have been filing the details of the reversals made to the Department, which was received and acknowledged by the Department. As the Appellant had reversed the Cenvat credit taken on the exempted output services, they claimed benefit of Notification 1/2006-ST dated March 1, 2006 (“Abatement Notification”) which provides for an abatement of 70% from the value of services in respect of the taxable service of ‘transport of goods in containers by rail services’.

The Revenuesought to deny the benefit of abatement on the ground that reversal of Cenvat credit after availing the Cenvat credit does not tantamount to non-availment of Cenvat credit and, therefore, the conditions of Abatement Notification stands violated. The Revenue contended that the Appellant should have maintained separate records ab initio giving details of the Cenvat credit attributable to the taxable services as well as exempted services and not taken the Cenvat credit in respect of such exempted services. Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Mumbai.

The Hon’ble CESTAT, Mumbai after noting that Rule 6(3)(i) and (ii) of the Credit Rules read with Rule 6(3A) thereof provides a mechanism of reversal of Cenvat credit to provider of output services opting not to maintain separate records and relying upon following judgments:

• Chandrapur Magnet Wires (P) Ltd. Vs. Collector of Central Excise [1996 (81) ELT 3 (SC)];
• Commissioner of Central Excise Vs. AshimaDyecot Ltd. [2008-TIOL-659-HC-AHM-CX]; and
• Life Long Appliances Ltd. Vs. Commissioner of Central Excise [2000 (123) ELT 1110 (Trib.)] affirmed by the Hon’ble Apex Court in [2006 (196) ELT A 144 (SC)]

Held that once the reversal of Cenvat credit is done as prescribed in Rule 6(3A) of the Credit Rules, it would amount to non-availment of Cenvat credit.

Accordingly, the matter was remanded back to the Adjudicating Authority to consider the details of reversal submitted by the Appellant and if any details are lacking, to specifically ask for the same which shall be furnished by the Appellant without any delay. Thereafter, on verification of Cenvat credit reversal as per the formula,benefit of Abatement shall be extended to the Appellant.