Case Law Details
P I Industries Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
CESTAT Ahmedabad held that demand of excise duty equal to 10%/5% unsustainable as Cenvat credit in respect of common input service used in the manufacture of exempted goods reversed.
Facts- The appellant are engaged in manufacture of excisable goods falling under chapter No. 28,29,31& 38 of the Central Excise Tariff Act, 1985. They are also availing Cenvat Credit under Cenvat Credit Rules 2004 on central excise duty paid on Inputs, Capital Goods and Input Services. Appellant is manufacturing Siapton 10L which was exempted. The said goods were cleared without payment duty but neither separate account were maintained for duty paid inputs and input services used in the manufacture of dutiable and exempted goods nor 10% amount of value of clearance of such goods was paid.
Accordingly, show cause notices dated 29-02-20209 and dated 13.05.2010 were issued to the appellant demanding central excise duty under Rule 6(3)(b) of Cenvat Credit Rules, 2004. In adjudication, the Ld. Commissioner dropped the proceeding initiated against the Appellant vide SCN dated 13.05.2010 and in respect of show cause notice dated 22.09.2008 confirmed the demand of Rs. 1,26,19,534/- in terms of Rule 6(b) of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 and imposed penalty of Rs.1,26,19,534. Hence the present appeal.
Conclusion- The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. Moreover this issue has been consistently considered in various judgments wherein it was held that if the assessee reverse the Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10%/5% will not sustain. Therefore, we do not find any merits in the impugned order confirming demand for the period April 2008 to June 2009.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
M/s. PI Industries Limited (earlier known as Isagro (Asia) Agrochemicals Pvt. Ltd.) has filed this appeal assailing the impugned order-in-original dated 20-01-2013passed by the Commissioner, Central Excise &Customs, Surat.
2. Brief facts of the case are that the appellant are engaged in manufacture of excisable goods falling under chapter No. 28,29,31& 38 of the Central Excise Tariff Act, 1985. They are also availing Cenvat Credit under Cenvat Credit Rules 2004 on central excise duty paid on Inputs, Capital Goods and Input Services. Appellant is manufacturing Siapton 10L which was exempted. The said goods were cleared without payment duty but neither separate account were maintained for duty paid inputs and input services used in the manufacture of dutiable and exempted goods nor 10% amount of value of clearance of such goods was paid. Accordingly, show cause notices dated 29-02-20209 and dated 13.05.2010 were issued to the appellant demanding central excise duty under Rule 6(3)(b) of Cenvat Credit Rules, 2004. In adjudication, the Ld. Commissioner dropped the proceeding initiated against the Appellant vide SCN dated 13.05.2010 and in respect of show cause notice dated 22.09.2008 confirmed the demand of Rs. 1,26,19,534/- in terms of Rule 6(b) of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 and imposed penalty of Rs.1,26,19,534. Hence the present appeal
3. Counsel Shri Ashok Dhingra with Ms. Sonia Gupta appearing for the appellant submits that Ld. Commissioner in the impugned order recorded a finding that the Appellant has reversed Cenvat Credit attributable to processing of SIAPTON during the period September 2004 to June 2009 along with interest and appropriated the same; accepted the CA certificate in that regard; but dropped the demand only for the period September 2004 to March 2008 covered under Rule 6 (7) of the Cenvat Credit Rules, 2004. Having accepted the facts and the CA certificate that Cenvat credit attributable to entire period of demand under first notice was reversed, the Ld. Commissioner had no reason to restrict such reversal of Cenvat credit only to the period provided under Rule 6(7) of Cenvat Credit Rules and not the entire period of demand.
4. He also submits that it is an accepted principle of law that reversal of Cenvat Credit attributable to exempted goods or service amount to not taking Cenvat credit at all. However, the Ld. Commissioner while appropriated entire amount of Cenvat credit along with interest attributable to common input services for the period April 2004 to June 2009, dropped demand only for the period April 2004 to March 2008 being covered under Rule 6 (7) of the Cenvat Credit Rules and confirmed the demand and recovery amounting to Rs. 1,26,19,534 along with interest for the period April 2008 to June 2009, which is bad in law. Appellant having reversed entire amount of Cenvat Credit availed on common input services related to SIAPTON, the demand is not sustainable. He placed reliance on the following judgments:-
(i) Welspun Corporation Ltd. vs. CCE – 2019(368)ELT 179(Tri.)
(ii) Star Agriwarehousing & Collateral Management Ltd. vs. CCE – 2021 (44) GSTL 271 ((Tri.)
(iii) Ahemdnagar District Central C-op Bank Ltd. vs. CST – 2018(364)ELT 1098 (Tri.)
(iv) Reliance Life Insurance Co. Ltd. Vs. CST -2018(363)ELT 1050 (Tri.)
5. On the other hand, Shri Ganasyam Soni, Additional Commissioner (AR) reiterated the findings in the impugned order.
6. We have heard both the sides and perused the records. We noticed that in the present matter Ld. Commissioner confirmed the demand for the period April 2008 to June 2009 on the ground that the Appellant has availed the Service tax credit on Common input services used in the exempted products “Siapton 10L” without maintaining separate records in terms of Rule 6 of Cenvat Credit Rules, 2004. Ld. Commissioner held that this period is not covered under the retrospective amended vide Clause 73 of the Finance Act, 2010, thus the Appellant are not liable to pay 10% of the value of assessable value of exempted products. We find that that Rule6 of the Cenvat Credit Rules, 2004 was amended beneficiating the assessee under the Finance Act, 2010 and that the new sub-rule (7) inserted under Rule 6 ibid enables the appellant to claim the benefit with retrospective effect. The provisions referred to by the learned commissioner reads as follows:
“(7). Where a dispute relating to adjusting of credit on inputs or input services used in or in relation to exempted final products relating to the period beginning on the 10th day of September, 2004 and ending with the 31st day of March 2008 (both days inclusive) is pending on the date on which the Finance Bill, 2010 receives the assent of the President, then notwithstanding anything contained in sub-rules (1) and (2) and clauses (a) and (b) of sub-rule (3), a manufacturer availing CENVAT credit in respect of any inputs of chargeable to duty and also other final products which are exempted goods may pay an amount equivalent to CENVAT credit attributable to the inputs or input services used in or in relation to the manufacture of exempted goods before or after the clearance of such goods.”
The procedure for claiming the benefit under sub-rule (7) of Rule 6 of the Cenvat Credit Rules, 2004 was also prescribed under the Finance Act, 2010 vide Section 73(2) (vide infra).
73. Amendment of rule6 of CENVAT Credit Rules, 2004. –
(1) ….
(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) ….
(4) ….
(5) ….
In the present matter Ld. Commissioner allowed the benefit to the appellant only pertaining to the period September 2004 to March 2008 and dropped the demand as per the above retrospective inserted sub-rule (7) of Rule 6 of Cenvat Credit Rules, 2004 but confirmed the demand for the period April 2008 to June 2009 on the ground that this period is not covered under the retrospective amendment.
7. We find that the case of the department is that since the assessee has availed the Cenvat credit in respect of common input service used in the manufacture of dutiable and exempted goods, the appellant is required to pay 10%of the value of the goods cleared without payment of duty (exempted goods). From the facts it is undisputed that the appellant have been reversing Cenvat credit proportionate to the credit on input service used for exempted goods along with interest, therefore, first the credit though availed at the time of receipt of input service but after reversal thereof along with interest the position is as if credit was not availed. We are also of the view that Rule6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. Moreover this issue has been consistently considered in various judgments wherein it was held that if the assessee reverse the Cenvat credit in respect of common input service used in the manufacture of exempted goods the demand equal to 10%/5% will not sustain. Therefore, we do not find any merits in the impugned order confirming demand for the period April 2008 to June 2009.
8. In the present case since the Ld. Commissioner has demanded 10% of the value of exempted goods, he has not verified the correctness of actual Cenvat credit attributed to exempted goods as reversed by the assessee. Therefore, only for the purpose of verification of such quantification of reversal, the matter is remanded to the adjudicating authority.
9. The appeal is disposed of by way of remand to the Adjudicating authority in the above terms for passing a fresh de novo order.
(Pronounced in the open court on 08.06.2023)
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